Watson Millican determined the current use and potential use of the refining company’s crude oil gathering systems and connecting pipelines to the refinery if sold to a third party with the refinery company having first right to a tranche of capacity at a known tariff. Crude oil production history and outlook for the connected oil fields was collected and assessed. The value of the crude oil to the refinery, based on its assay properties, was evaluated using a linear program model to simulate the refining of the crude oil at the refinery. These values were compared to other crude oils which the refinery could access. It was concluded that the values generated by the crude oils supplied through the gathering system and pipelines were historically the highest valued crude oils to the refinery compared to other alternative crude oil supplies. The concluded risks to the ongoing supply of these crude oils and impact to refining value if the gathering system and pipelines were owned and controlled by the third party were determined to outweigh the one-time receipt of sale proceeds. Watson Millican recommended to the refinery company management that the gathering system and pipelines not be sold. The refinery company decided to retain the assets consistent with our recommendation.

The refining company was approached to purchase from a third party an existing but long idled 100-mile crude oil pipeline that could be readily connected to supply crude oil to a refinery from a primary crude oil storage and trading hub. The pipeline was constructed during 1950s but had been idled for a number of years. Watson Millican reviewed the available pipeline construction, operation, maintenance, inspection and mechanical integrity information, including more recent inspection pig results provided by the seller. A preliminary rehabilitation plan and cost estimate was developed to return the pipeline to service and complete the necessary connections for the refinery to receive crude oil form the crude oil storage and trading hub. Mechanical integrity risks and associated cost risks were developed. Watson Millican recommended to the refinery company that they not purchase the crude oil pipeline, even if the sale price was de minimis as the rehabilitation and operational risks were determined to be excessive. The refinery company did not purchase the crude oil pipeline. Subsequently, the refinery company requested Watson Millican to consider the terms of a proposal they received to have a third-party construct and operate a new crude oil pipeline to the refinery from the crude oil storage and trading hub. We performed an economic and commercial risk evaluation of the proposal, along with evaluating the economic benefit to the refinery of the access to new crude oil through the crude oil storage and trading hub. We recommended to the refining company management to accept the proposal with some commercial changes. The refinery company executed the proposal and the crude oil pipeline was constructed and placed in service.