Oct. 21--Holly Corp. was looking at possibly buying Tulsa's Sinclair oil refinery even before it announced its purchase of the nearby Sunoco Inc. refinery earlier this year, Holly CEO Matt Clifton said Tuesday in an interview with the Tulsa World.

Dallas-based Holly Corp. announced Tuesday it has an agreement with Sinclair Oil Corp. to buy its Tulsa refinery. Holly bought the Sunoco refinery only five months ago.

Both are located in Tulsa west of the Arkansas River.

The Sunoco deal did not close until June, and the discussions with Sinclair Oil Corp. heated up in late summer, Clifton recounted.

Holly was attracted by the Sinclair site's ability to produce ultra low-sulfur diesel and finish refining of Sunoco gas oil which otherwise is shipped to Ohio.

"All refineries aren't created equal," he said.

Holly will pay Salt Lake City-based Sinclair about $128.5 million for the refinery and other amounts for inventory and storage, the companies said. The deal allows Holly to eliminate the need for a $150 million upgrade at the former Sunoco plant.

Even so, Clifton pointed out, Holly will spend about $15 million on environmental upgrades at Sunoco. A new sulfur recovery unit will be installed and emissions reduction

work completed over the next 18 months to two years, he said.

Holly employs more than 300 people at the former Sunoco site. The Sinclair facility, about two miles away, has more than 250 workers. Clifton could not say how the integration plan will affect that number.

"We think that, for all the employees who end up working for Holly (after the acquisition), the jobs they have will be more secure," the CEO said. "It's a very competitive refinery."

Holly also operates its two New Mexico refineries, which are about 60 miles apart, as a single unit. Overall, Holly will have more than 250,000 barrels per day of refining capacity companywide.

Capacity of the former Sunoco refinery is listed at 85,000 bpd, while Sinclair was touted as a 75,000 bpd facility. The integrated Tulsa operation will be about 125,000 barrels daily of gasoline, diesel, specialty lubricants and other products.

"That 125,000 is close to what the two plants were running on average the last couple of years," Clifton said. "It's not like we're dropping off a lot in production."

Both refineries' much publicized expansion and upgrade projects, however, are off the table.

The Sinclair purchase makes a $150 million desulfurization project at the old Sunoco obsolete, while the $1 billion Sinclair expansion has been on hold for most of this year.

Sinclair pulled back from its huge upgrade, first announced in 2007, during last year's economic downturn, Clifton said. By the end of 2008, Sinclair was on an unsuccessful search for a partner to help fund the effort.

"It was already not going to happen," he said.

Sinclair is completing some emissions reduction projects required by the Environmental Protection Agency. Holly will reimburse about $16 million of those costs, the CEO estimated.

The Sinclair deal will help Holly improve its utilization rates and processing of high-value products, Clifton said. For instance, gasoline will rise to 44 percent of the sales mix from the current 22 percent, thanks in large part to Sinclair's gas-oil finishing capabilities.

The other immediate job is getting additional pipelines in place to connect the two refineries.

Holly will survey potential routes if it has to install the pipelines on its own, Clifton said.

Rod Walton 581-8457 rod.walton@tulsaworld.com

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