Exxon Mobil threatens to walk away from agreement with troubled refinery project

Mar. 3—New complications hit the Rosedale Highway refinery conversion project as partner Exxon Mobil Corp. said this week it will walk away from its 2019 agreement to buy all the renewable diesel produced at the facility if it's not operational by the end of June.

The oil major's threat in a filing Thursday with the U.S. Securities and Exchange Commission, combined with a demand to see the plant owner's private records because of suspected "misconduct and mismanagement," has come as the project races toward planned completion by the end of this month.

Taken together, the developments add to already heavy pressure on Long Beach-based Global Clean Energy Holdings Inc. to wrap up a project that has fallen a year behind schedule and run hundreds of millions of dollars over budget.

If the conversion of the former Big West refinery succeeds, Global Clean Energy will become California's largest producer of renewable diesel. But now, if it fails to finish the project before July, it may have to negotiate a new product sales agreement — plus, according to one industry insider, it could stand to lose control of the refinery altogether.

Exxon Mobil, which has invested at least $125 million in Global Clean Energy and controls two seats on its board, said in an email Friday it believes there is "no possibility" the company will deliver renewable diesel according to the terms of its original product purchase agreement.

The oil producer added it has worked with Global Clean Energy to bring the refinery conversion to a timely completion. It declined to answer questions about its mismanagement concerns or what it might do with its warrants to buy 34.7 percent of the company's stock for a total cost of $50.7 million.

Global Clean Energy, for its part, took issue with Exxon Mobil's assertions in an email Friday, saying it considers the company's notice of termination of its off-take agreement to be ineffective. It said it is working diligently with the project's contractor and that it believes the allegations of misconduct and mismanagement to be without merit.

In January, Global Clean Energy struck an agreement to finish the conversion project no later than March 31. The accord with the project's Taiwan-based contractor, CTCI Corp., raised by a third the cost of the project's primary engineering, procurement and construction contract.

The agreement with CTCI came after Global Clean Energy warned in November that its survival was on the line if it could not raise money to conclude the job after its overall project costs jumped to $510 million from its original estimate of $200 million.

Refinery consultant Dave Hackett, chairman of Irvine-based Stillwater Associates LLC, said by email the refinery's start date remains critical to Exxon Mobil. He said that the company will presumably rescind its termination notice if the project successfully begins operation before June 30.

Bay Area-based refinery consultant Ian Goodman noted by email Exxon Mobil is among other oil and gas producers such as Chevron that are buying renewable diesel and other fuels that can be substituted for petroleum.

Goodman said Exxon Mobil, highly profitable and with money to spend, may be trying to find a way out of its partnership with Global Clean Energy. Or, he added, it may be "positioning so it can buy up the project (and perhaps all of GCEH) at a big discount."

It's hard to tell from outside, Goodman wrote, but it could also be that the oil company is angling for a better renewable-diesel purchase deal.

One problem that could arise in such high-pressure situations, he noted, is that hasty mistakes could be made while converting part of the 65,000-barrel-per-day refinery, which hasn't operated for 12 consecutive months since 2012, into a plant capable of producing 15,000 barrels per day of renewable diesel.

"Put bluntly," Goodman wrote, "pressure to get it done could encourage taking short cuts, fudging, deeming work done and starting up operations in ways that could lead to further problems."