Flying J, Pilot Travel OK Truck Stop Merger; Refining, Pipeline Assets Still Up For Grabs

Flying J's core truck and travel stop business could emerge from Chapter 11 bankruptcy in a preliminary merger agreement announced this week with rival Pilot Travel Centers. But the Ogden, Utah-based company's other assets including two refineries and a pipeline remain up for grabs.

The merger, presuming the two companies successfully hash out a definitive agreement and it receives the necessary bankruptcy court approval, would speed up Flying J's exit from bankruptcy. The deal would give Flying J a bit of breathing room, allowing it to pay all of its creditor obligations. And not to mention an additional $100 million in financing, courtesy of Pilot, to pay for operations.

But the privately held company -- one of the 20 largest in the U.S. with more than 14,000 employees -- still has a complex array of assets hanging out there and at least one that is far from profitable.

Flying J filed for Chapter 11 bankruptcy protection in December 2008 when plummeting oil prices caused a credit crisis. The company known for its extensive network of 250 travel plazas that cater to the trucking industry operates a number of other oil-related services including its Big West refining arm and Longhorn Pipeline. Flying J also owns an oil and gas exploration company as well as Transportation Alliance Bank.

Flying J's Big West refinery in Salt Lake City continues to operate and its situation is not comparable to the company's Big West of California refinery, spokesman Peter Hill of Kekst and Co., said in a phone interview Wednesday.

The Big West of California refinery in Bakersfield is not producing and only a small number of staff continue to work at the facility, Hill said. Multiple parties have expressed interest in buying the Bakersfield facility, said Hill, who stopped short of revealing specific companies.

The Bakersfield refinery, which Flying J bought from Royal Dutch Shell in 2005, was forced to shut down production and lay off workers after losing its crude supplier and failing to find a new one. Shell stopped supplying crude immediately following Flying J's bankruptcy filing with the U.S. Bankruptcy Court in Delaware.

The refining end will continue to be problematic for Flying J, and its not alone. U.S refiners are being squeezed by a weak dollar, higher crude prices and sluggish demand for oil and gas. In a BNET Energy post about Chevron earlier this month, I discussed how rising crude prices have increased input costs for refiners, who are unable to raise their own prices because of weak domestic demand.

Longhorn Pipeline, a 700-mile pipe from the Gulf coast to El Paso, Texas, is still operating and could be sold in an auction that ends July 27. Hill wasn't able to provide many details about the potential bidders, except to say there are a number of interested parties in addition to Magellan Midstream Partners. Magellan was selected last month as the "stalking horse" bidder for Longhorn Pipeline, which includes a terminal with more than 900,000 barrels of storage. Magellan, which operates the pipeline, is bidding $340 million for the system including product in the pipeline and plans to finance the acquisition with the sale of its 10-year senior notes.