Somerset refinery to close this week

Feb. 10--SOMERSET -- A Somerset refinery that has turned out gasoline for generations will shut down this week, putting more than 30 people out of work, company officials said.

A New York real estate magnate bought the refinery out of bankruptcy in 2008 with plans to build it back into a significant producer of petroleum products.

The plan didn't work out because the company could not get a sufficient supply of crude oil from suppliers, said Eddie Phelps, a spokesman for Somerset Energy Refining, the current name of the refinery.

The company bought crude oil from Kentucky and Tennessee, but a key supplier pulled out Jan. 1, Phelps said.

"That was a fatal blow," he said.

There is a bit of refining work to finish to idle the facility. That will be done this week, Phelps said.

The refinery is one of only two in the state. The other is the giant Marathon Oil facility at Catlettsburg.

The Somerset refinery can produce up to 5,500 barrels a day under its permit. The capacity at the Marathon refinery is 226,000 barrels a day, according to the company Web site.

Phelps and owner Michael Grunberg said they think the inability to get a supply of crude to process at the Somerset refinery stemmed from financial problems and a bitter fight over control of the company that happened before Grunberg bought it in September 2008 for $2.2 million.

Some crude suppliers didn't get paid under previous owners, which made them reluctant to deal with the refinery, Phelps said.

It probably would have been better to change the name of the company to remove "Somerset" as a signal to suppliers they were dealing with a new group, Phelps said.

Instead, many crude-oil suppliers hauled their product to the Marathon facility.

The Somerset refinery was shut down for more than two years before the new owners got it back into production last May.

Companies had to find somewhere else to take their crude oil during that time.

That probably also affected the Somerset refinery's ability to rebuild its supply, said John Gabbard, executive director of the Kentucky Oil & Gas Association, which represents crude-oil producers.

"There was a question in getting your base" back after suppliers began going elsewhere, Gabbard said.

The Somerset refinery opened in the 1930s. It employed more than 150 people at one time and provided an important market for small crude producers in the region for decades, a longtime executive told the Herald-Leader in 2008.

Grunberg said he invested $20 million in buying and upgrading the refinery. It had 66 employees in November, but the workforce has dwindled to 36.

A skeleton crew will stay on to keep the refinery in shape while Grunberg tries to sell it, Phelps said.

Grunberg said he is trying to sell it for $12 million to $14 million.

The company includes the refinery, a transport company, some gas stations and an environmental-services branch. Sales are pending on some of the gas stations, Phelps said.

Grunberg said he has high hopes that someone will buy the refinery and power it up. Sales were not the problem before the shutdown, he said.

"We were selling like gangbusters," he said.

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