Tuesday, June 21, 2016

Explosive Profits

Update: 
 Lives at risk in Torrance.CA Refinery and the surrounding area: 255,524 people. 
                                                                                              Radius of exposure 3.2 miles. 

Today1 killed, 3 hurt in oil well explosion in North Dakota (XTO Energy is a subsidiary of ExxonMobil)

Now that you know what is happening with ExxonMobil, here is the PBF Energy's history.
 

The Story of Tom O'Malley
by  Dave Lincoln & Melinda Pillsbury-Foster

O'Malley - On first for profits
       Tom O'Malley is making his exit from a stage where he has occupied the central role in an ongoing scheme to convert aging refineries into explosive sources of profits for himself and his team. This month, the last of the corporate shells he used to move the action along, PBF Energy, is about to acquire Exxon's Torrance Refinery, located near enough to downtown Los Angeles to allow the potential explosion from the refinery to light up the sky at the Los Angeles Court House.
        In June 2016, PBF will, presumably, add to its stable of four aging refineries with the acquisition of the EXXON Torrance Refinery for a half Billion dollars. This 85-yr-old, trouble-plagued refinery is one of the most dangerous industrial facilities in any major metropolitan area in the United States. For the reasons documented for the first time in this report, we must stop this sale and shut down this plant to prevent a catastrophe in the Los Angeles area.

       The untold story of dangerous and neglected refineries could impact the health and safety of 15 million Americans. This twisted and bizarre saga is centered around PBF Energy and the self-proclaimed king of refineries with the Midas touch, Thomas D. O’Malley.
     It all started with TOSCO, a company started by an eccentric multi-millionaire,
Huntington Hartford, more connected to Hollywood than the oil fields. Our story opens with the purchase of a useless piece of land in Colorado by The Oil Shale COmpany (TOSCO), in 1955. This start-up, fly-by-the-seat-of-your-pants company, intended to focus on extracting oil from oil shale and developing alternative energy sources. Huntington, Amoco and SHELL and later EXXON spent a fortune trying to process oil out of shale just like the Nazis did in World War II; but they failed spectacularly.
       In 1965, TOSCO sold part of its Oil Shale project to AMOCO for more than $20 million and began its foray into the refinery industry to build out a ready source of income. First TOSCO bought the Bakersfield Refinery from Signal Oil. In 1970, it bought the Avon Refinery in the San Francisco Bay Area from Phillips. Then, in 1980, TOSCO bought the Oklahoma Refinery from Sunoco for $140 million.
       That same year, Arco sold its interest in the oil shale project to EXXON for $360 million and TOSCO sold its 40% interest in the oil shale to EXXON for $300 million. Now, Exxon owned nearly the whole operation and after spending a Billion dollars, EXXON decided they wanted to terminate the effort.
      Probably to their chagrin, EXXON discovered the contract required them to purchase TOSCO's interest in the oil shale because TOSCO did not have the money to pursue development on their own. There it was, in the contract in black and white. It was like playing musical chairs with a hot potato where the last person standing got stuck with the burning potato and had to pay off all the other players. Exxon was left with the steaming potato.
      It was the perfect outcome for TOSCO since the project was never going to be economic under any reasonable scenario and they were in desperate need of cash. At that time, it was estimated that the project would need a minimum of $5 Billion just to become operational.
     So, on May 2, 1982, EXXON terminated the jobs of more than 2000 employees in the area which locals still call “Black Sunday”. During it’s nearly 20-year history the entire project had produced about a quarter million barrels of shale oil worth less than $500,000 dollars. It was a total economic disaster.
     The following year, TOSCO bought Arizona Land Resources (AZL Res) for $85 million, a company involved with oil and resort developments in Arizona and Colorado. The CEO of AZL Resources at the time was the enigmatic oilman and UN Diplomat, Maurice Strong. Strong eventually paid over $4 million for fraudulently hyping the stock value of AZL, but he ended up owning the 150,000 acre Baca Ranch in Colorado and TOSCO was left with little of their investment.
      TOSCO closed their Oklahoma Refinery just 3 years after purchase. The Oklahoma Dept. of Environmental Quality declared the Oklahoma Refinery contaminated and named TOSCO as a principal responsible party. TOSCO defaulted on some of their loans and continued to sell-off assets. At this point they 'understood' that contaminating people, air, land and water was unacceptable. By 1986, they sold their Bakersfield refinery to Texaco for $22 million.

      This was the same, fateful year Thomas D. O’Malley entered the picture. He formed Argus Resources, an oil and gas production company. This ultimately became a family-owned empire made up of Argus Energy LLC, Argus Investments Inc., Argus Development LLC and many other companies based in Connecticut.
       Until now, we have followed one company. Now, we will watch, as if by magic, this one company sheds identities while keeping its essential persona and new business plan intact. The skin means nothing, it is the persons inside who making the decisions.  You will need the O’Malley CEO timeline to follow the metamorphosis and understand what is happening as Tom O'Malley provides essential services to the oil industry and becomes wealthy beyond his wildest dreams. 

 

The Buying Spree

      In 1987, Thomas O’Malley and Argus Energy bought 26% of TOSCO and COMFED BANKCORP in Massachusetts. This mortgage lending company was a dubious investment. Along with indictments for fraud on January 15 1988, a COMFED VP, Elizabeth Bourne-Johnson, was found fatally shot in the head in the trunk of her car in South Boston Mass, not a fate generally associated with the banking industry. The same year, O’Malley purchased 40% of TOSCO and became Chairman of the COMFED S&L from 1988 to 1989; at which time he became Chairman and President of TOSCO and moved the headquarters to Connecticut.
       Another brutal murder had occurred in Boston about then. Bookie, John McDermott was fatally shot in the head in front of his son who was seriously injured. The son testified that the killer was William “Billy” Barnoski, the enforcer for James “Whitey” Bulger. Bulger was the mob boss, FBI informant and for 15 years their most wanted fugitive who was linked to at least 19 murders and was known to have operated in South Boston during the time the VP was murdered.
        It has been speculated that someone in COMFED management who knew Whitey Bulger had Elizabeth Bourne-Johnson silenced because she knew too much about their policies or finances. No suspect was ever named.
       By 1990, COMFED Savings Bank had its assets seized in Wakefield. The largest mortgage lender in New England was declared insolvent on Dec. 17th due to massive fraud. More than 30 managers and employees were arrested and charged with fraud and perjury including the bank’s lawyer.
       The Hartford Courant reported that three banks in Connecticut acquired over $500 million in insured deposits for a discounted price of $1.5 million. Elizabeth Bourne-Johnson's murderer was never identified.
        Now firmly under the control of Tom O'Malley, Tosco begins a new lease on corporate life. It goes without saying that O'Malley must have had a reason for buying an interest in these companies. We can bet he made a profit on Comfed Bancorp before it was declared insolvent – but the only assets associated with Tosco at the time was two problematic refineries.
        Since O'Malley is a clever, guy he had to have his reasons for wanting the moribund and dangerous refineries which you will see illustrated below. He could have found a way to profit from insurance claims and tax deductions. But the accumulation of wealth for reasons not in evidence was obvious.
      The company was about to experience an explosion in profits as the refineries themselves blew up.


The Shuffling Begins:
1986 – O'Malley incorporates ARGUS Investments - is CEO.
1987 - ARGUS Energy buys 26% of Tosco and Comfed Bancorp for – how much?
1988 – December 1 - O'Malley becomes CEO of Comfed Bankcorp
1988 - ARGUS Energy buys 40% of Tosco.
1989 – O'Malley becomes CEO of Tosco
1992 - TOSCO acquires EXXON Bayway Refinery, Linden, NJ for $175 million.
1993 - TOSCO acquires Ferndale Refinery- Washington State from BP.
1996 - TOSCO buys UNOCAL’s western operations for $1.3 Billion. Transfers of control will take place over several years.
This included: over 2500 Union 76 gas stations and Circle K stores and 7 Refineries.

The Magnificent Seven
The Los Angeles Refinery ("LAR") System, consisting of two linked refineries located in: Carson (built in 1923)
1996 – TOSCO acquires Wilmington Refinery, CA (built in 1919) from Unocal.
1996 – TOSCO acquires Trainer Refinery - is shutdown - restarted May 1997.
1996 – TOSCO acquires Rodeo Refinery (built in 1896) San Francisco Bay area, and
1997 -  TOSCO acquires Avon Refinery, (built in 1915), Martinez, CA.
1997 -  TOSCO acquired Santa Maria Refinery (built in 1955).

      At the time of this purchase Avon, Rodeo and Wilmington Refineries had each experienced at least three fire and/or explosion incidents.
At this point, you might well ask “How did TOSCO, a struggling production company, get a bank to loan them more than $1 Billion to buy refineries more than 75 years old?” This is the essence of O’Malley’s strategy.
       The inflated value of the assets was used as collateral on the loans. He convinced the banks, some of which he controlled, that the refineries were worth their replacement value rather than their actual depreciated value. To maintain this deception, all he had to do was to demonstrate how many barrels per day of products these old facilities could produce and that they could still operate at a profit. This dictated that every refinery purchased would be pushed to its maximum capacity and operating costs would be kept to the minimum. Thus by delaying maintenance and cutting personnel to the bone, TOSCO could maximize profit and use the new assessed value to justify larger loans and purchase more distressed refineries.
     The fallacy of these arguments was tragically revealed on January 22, 1997, when TOSCO’s Avon Refinery caught fire and a pipe blew up killing one worker and injuring 46. TOSCO waited more than a week to report the actual number of injured meanwhile continuing to operate the units not directly impacted by the blast. TOSCO responded by buying the nearly 100-yr old Marcus Hook, PA Refinery from BP for $235 million dollars that same year. Why would a company expend money on further purchases when the refineries they owned needed repair and maintenance?
     Then on February 23, 1999 the TOSCO Avon Refinery blew up again; killing 4 and seriously injuring one worker. This time, Thomas O’Malley, CEO of TOSCO apologized in person. The subsequent Chemical Safety Board (CSB) investigation found that the company attempted to replace a pipe in a 150 ft. tall fractionating tower while the unit was still operating. One surviving employee stated that plant managers had refused a request from oil workers to shut down the high temperature unit during repairs which ultimately spilled hot Naphtha on to the employees burning them to death. The CSB concluded the incident "could have been prevented by better management supervision of safety". The same year, TOSCO reported a fire at its Wilmington Refinery.
       On February 29, 2000, TOSCO acquired and began operating an additional system of 1,740 gasoline and convenience outlets from EXXON. As a result of this purchase, TOSCO became one of the nation's largest operators of company-controlled convenience stores. Also, during that year, two more fires occurred at the TOSCO Avon Refinery; each time injuring another two workers. In addition, TOSCO reported a fire at its Rodeo Refinery.
       In 2001, on the strength of TOSCO stock and its refining and marketing assets, Phillips paid $7.3 Billion in stock for TOSCO while assuming over $2 Billion in debt. O’Malley becomes Vice Chair and largest stockholder of Phillips.
     In 2002, CONOCO merges with Phillips. O'Malley is not included in this corporate makeover. Instead, O’Malley becomes CEO of PREMCOR; a company that changed their name from Clark Refining Group after it was taken over by Blackstone Investments. The company’s main asset was the Clark Oil Refinery (built in 1943) on Blue Island near Chicago, Illinois. This refinery had already been plagued with problems including a fire in 1994 which resulted in an infamous toxic dust release. The dust forced the evacuation of a nearby high school, the hospitalization of 48 students for respiratory distress and an eventual PREMCOR $120 million settlement which involved 4000 residents. 
       This was followed a year later by a fire at the same refinery which killed two workers and injured 3 others and resulted in an out-of-court settlement of $12 million to the victims and their families.
      Also in 2002, PREMCORP closed the Clark Refinery and paid the EPA $6.2 million in fines for environmental violations.
      PREMCORP, now with O’Malley at the helm, responds by purchasing the 60-year-old Williams Refinery (built in 1941) in Memphis, Tenn. for $455 million. O’Malley characteristically moves PREMCORP headquarters from St. Louis, MO to Greenwich, CT. It then acquired two other small refineries, located in Lima, Ohio and Hartford, Illinois. Three more purchases of refineries.
      By 2004, PREMCOR bought Saudi Shell Motiva Refinery in Delaware City, NJ for $900 million. The following year VALERO, one of the nation’s largest petroleum retailers, paid $7.4 Billion for PREMCORP.
     In May 2006, O’Malley joined PETROPLUS as CEO. At the time, the company was an international refiner based in Amsterdam with three relatively small refineries. They owned one each in 3 countries; Belgium, Switzerland and the UK. Over the next 2 years, O’Malley led PETROPLUS through the purchase of five more large European refineries at a total cost of more than $3 Billion becoming Europe’s largest independent refiner.
     In 2008, Thomas O'Malley formed and became Chairman of PBF with financing from PETROPLUS, Blackstone Investments and First Reserve Bank.
     In 2009, the PETROPLUS Ingolstadt Refinery in Germany catches fire. Also, VALERO closes the Delaware City NJ refinery permanently as a cost cutting measure. VALERO acquired it from PREMCORP in the takeover and was forced to take a write-down. In the previous 5 years, the Delaware City refinery had experienced 2 major fires resulting in a total of 2 deaths and 10 injuries.
     In 2010, PBF bought the shuttered Delaware City Refinery from VALERO Energy for $ 220 million and the Paulsboro Refinery for $360 million. PBF also bought the Toledo Ohio from Sunoco for $400 million. PETROPLUS sells its interests in PBF for $ 90 million and reports annual revenues of $20 Billion that year. O'Malley is taking his purchases with him as he changes skins.
    At the end of 2011, the bank lenders froze the PETROPLUS $1 Billion credit line. Amazingly, PETROPLUS lost 9 Billion between 2007 and 2011 when O’Malley resigned as Chairman. On January 12. 2012, the company became insolvent when it defaulted on nearly $ 2 Billion on bonds and notes. O’Malley responded by taking PBF public with a $500 million IPO.
     Also in 2012 the Memphis Refinery which VALERO acquired in the PREMCORP takeover caught fire and exploded. One employee was killed and two others were injured.
    The year 2015 was an exciting one for O’Malley and PBF. In February, the Paulsboro Refinery (which the company acquired from Tesoro just four years before) exploded killing one worker. This was followed by two separate fires at the Delaware City Refinery, the same facility that PBF had taken out of mothballs after VALERO closed it 5 years earlier. PBF responded with the purchase of the 100-yr-old Chalmette, LA Refinery (built in 1915) from EXXON and the Venezuelan National Oil Company (PDVSA) for $322 million.
     O’Malley was reportedly rewarded with a $8.3 million annual salary. Why would exploding refineries be viewed as assets?
      The Tenneco Chalmette Refinery was notorious for years (as the author can personally attest while an employee of Tenneco) after a horrific explosion occurred in 1976 in which 12 people were tragically killed. The men were welding inside of a 30-story tower when apparently a gas leak blew the top off the tower and all of the metal above collapsed on the workers. One doctor reportedly said “their clothes were blown off and many are barely recognizable as human”. The explosion was felt as far as two miles away.
      Under Tenneco, there was also a Chalmette Refinery fire in 1983 which resulted in the death of two workers with 28 workers and firefighters injured. In 2010, when EXXON was the operator, another fire broke out which led to one worker’s death.

And Back to Torrance

      In 2016, PBF intends to purchase the “troubled” EXXON Torrance, CA (built in 1929) for $537.5 million. Let's think about this for a moment.
    EXXON had recently been fined over $ 500,000 for workplace health and safety violations pertaining to a major explosion and fire in February 2015 which dispersed catalytic dust up to a mile from the refinery. The CSB investigation revealed multiple process safety management deficiencies and inadequate hazard analysis which contributed to the incident. 
     The event was described as a “near miss” when a 15-ton piece of debris was thrown 100 feet and just avoided a tank containing thousands of pounds of modified hydrofluoric acid. A release of acid vapor could pose a threat of serious injury or death to the population exceeding 300,000 people within a 3-mile radius. In addition, there has been concern about the ability of these hydrofluoric acid tanks to withstand a major earthquake without rupturing. EXXON denied that there was any significant threat consistent with their previous claims.
       Wouldn't these facts make most people more cautious?
Following a 1989 hydrofluoric acid spill, the city of Torrance sued EXXON to convert the HF process to a safer alternative. EXXONMobil in Torrance and Valero in Wilmington are the only 2 refineries in CA that use toxic and volatile hydrofluoric acid (HF). EXXON argued that they could not make the change because it was too expensive. Instead they proposed their own proprietary formula for a 30% additive which was tested to reduce vapor formation.
      Subsequently, to cut costs they reduced the additive to 10% without independent testing. Thus we do not know if the current formula for Modified HF (MHF) actually works.
    Of all the refineries mentioned in this article, the Torrance Refinery is the epitome of a “fire trap”. Since 1979, the Torrance Refinery has reported no fewer than 18 significant incidents of leaks, fires and/or explosions which have resulted in a total of 8 deaths and 74 injuries. This total does not include the 2500 citizens who sued EXXON for damages after a mist of greasy oil fell on their property following a pipeline explosion in 1984. Also the refinery has been emitting over 100,000 pounds of Ammonia per year since 1999 averaging over a million pounds of Ammonia per year between 1996 and 2007. Alarmingly, it has emitted nearly 100,000 pounds per year of toxic hydrogen cyanide from 2011 until 2014, the last year for which data is available.
     For these reasons, PBF has stipulated that EXXON must operate the Torrance Refinery without problems continuously for 15 days before the company will complete the sale. Although the plant was finally restarted on May 10, 2016. Some modifications have been made and the clock has not yet been restarted for the sale to continue.
     On May, 27,2016, Thomas D. O’Malley announced his retirement from PBF effective at the end of June 2016. Coincidentally his son Todd O’Malley resigned as President of PBF Logistics earlier to assume the role of President of Gulf Oil in Framingham, MA. This struck us as a curious coincidence since we had published our first article about PBF not long before the announcement was issued.
    And on June 20th, a 300-ton Crane collapsed, narrowly missing the cracking unit, which was operating at the time. This was another near-miss – but the refinery continues to operate while the clean-up goes on. This, historically, is the time when most explosions or other 'incidents' take place. 

Our advice is – Close Exxon-PBF Torrance Refinery down now before, not after, the next 'accident.'