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Reports: Delta Air Makes Surprising Bid For ConocoPhillips' Trainer Refinery

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4/5/2012 12:02 AM ET

Integrated energy company ConocoPhillips (COP: Quote) has seen a bid coming from unexpected quarters for its East Coast oil refinery. Delta Air Lines, Inc. (DAL: Quote, DALRQ.PK) has reportedly placed a bid for ConocoPhillips' Trainer refinery, and is said to be in advanced talks. The airline has declined to comment on "rumor or speculation."

Delta is reportedly looking to pay between $100 million and $150 million for the Trainer, Pennsylvania-based refinery. If the bid is successful, this will be the first such deal for an airline.

According to a report in the Oil Price Information Service, which first reported Delta's approach on Monday, the Chief Oil Analyst Tom Kloza said, "It's a little like a rabbi buying a church."

The Houston, Texas-based ConocoPhillips had reportedly put up the Trainer refinery on the block in September 2011, and had recently extended the bidding deadline for the facility up to the end of May from the earlier deadline of late March.

The Trainer refinery is said to have the capacity to refine 185,000 barrels of oil per day, employing 400 people, and was closed by ConocoPhillips in September.

Though most of the refining experts are shocked by the news, Delta Air Lines has the idea of saving money when the cost of jet fuel is continuing to rise. Reports noted that refining petroleum in-house will reduce the outsourcing process and transporting costs.

The rising fuel prices, which is nearly 30 percent of operational costs of an airline company, has already pushed some of the airlines into bankruptcy or has seen consolidation in the industry.

Oil refining has also been an unprofitable business, just like the troubles in the airline industry. There has been no new refinery built in the U.S., and most of the major oil giants such as Marathon Oil Corp.'s (MRO), El Paso Corp. (EP), and Williams Cos. (WMB) are in the process of spinning off their refining assets.

ConocoPhillips itself is in the spin-off process, with its board approving the spin-off of its downstream unit earlier in the day. The company is paving the way to join a host of companies that have separated their refining business to unlock shareholder value.

DAL closed Wednesday's regular trading session at $10.48, up $0.16 or 1.55% on a volume of 12.34 million shares, while COP closed at $76.18, down $0.13 or 0.17% on a volume of 7.45 million shares.

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by RTT Staff Writer

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