When a Houston-based company purchased a refinery in Nixon about six years ago, it had been mothballed for years — and it showed. Rust streaked the plant’s storage tanks and piping.
But after refurbishing, the 15,000-barrel-a-day refinery began to process crude oil about a year ago, with every drop coming from the Eagle Ford shale.
“The drilling in the area is very impressive,” said Jonathan Carroll, CEO of Houston-based Blue Dolphin Energy Co. “You can look at maps and see that we are sitting right in the middle of the Eagle Ford, which is great.”
Nixon, about 54 miles east of San Antonio, straddles Gonzales and Wilson counties in a booming section of the shale play. That location “really makes everything a little easier,” Carroll said.
The company hasn’t disclosed how much it has invested in the Nixon refinery, but Carroll said “it’s in the tens of millions.”
Read more: Corpus Christi gears up for Eagle Ford gas
Still, although the plant did have rust, “it was put together very well when it was built” in 1980, he said. “It’s kind of like having a 1957 Chevy in the garage with very low miles.”
Blue Dolphin subsidiary Lazarus Energy LLC bought the refinery out of receivership for about $16 million in June 2006 as part of the previous owner’s Chapter 11 bankruptcy reorganization. (Publicly traded Blue Dolphin acquired Lazarus in February from Lazarus Energy Holdings LLC, Blue Dolphin’s largest shareholder.)
And Blue Dolphin seems set to rejuvenate another idled plant. It has an option to buy the Ingleside refinery on Corpus Christi Bay from Lazarus Energy Holdings. Discussions on the matter continue, Carroll said.
The Nixon refinery began to process crude oil in February 2012 and the plant reached 70 percent operating capacity in September, according to a Securities and Exchange Commission filing by Blue Dolphin. The company said the plant may reach full capacity in the first half of this year.
The refinery makes propane, butane and naphtha, which the company sells to other refiners or blenders as a gasoline component. It also is producing off-road diesel for agricultural use. There are plans to expand the Nixon plant to process 25,000 barrels of crude a day, according to a filing with the Texas Commission on Environmental Quality. Carroll was reluctant to talk about a possible expansion, but he said it could be part of the company’s long-term plans.
“You have to understand that not every bank and financing outfit that we went to really believed that it would ever be able to operate,” Carroll said. “For us to have this abundance of crude — for some (lenders) that might have been on the fence, it helped quite a bit.”
Also, Houston-based Genesis Energy LP “was a strong believer” in the plan to resurrect the plant, Carroll said. “They supply us with the crude oil and help us market the products.”
Genesis is the exclusive supplier of crude to the Nixon refinery under a three-year agreement that expires on Aug. 12, 2014, according to Blue Dolphin’s SEC document.
John Parry, a principal analyst at energy consulting firm IHS Herold, said it’s likely that the Eagle Ford crude is discounted compared with the benchmark West Texas Intermediate crude, and that’s helping the refinery’s bottom line.
Carroll said he’s “not displeased” with the plant’s margins – the difference between what his company pays for crude and what it gets for the finished product.
As the plant has ramped up, it has given a boost to Nixon, population 2,397, which has annexed the plant.
The plant employs 53, and Mayor Maria Blanch said “the whole town is glad they’re here because it means employment for people in the area.”
But even before the refinery was restarted, more trucks began to roll through the Nixon area because of drilling in the Eagle Ford shale. Now the plant is adding about 100 trucks a day to the traffic, Carroll estimated.
The truck traffic could be lessened if the crude be shipped through pipeline. And a pipeline owned by Koch Pipeline Co. crosses the refinery’s property. Most of the crude is bound for Koch’s plants in Corpus Christi.
“We are talking to Koch,” Carroll said. There isn’t a way to accommodate crude bound for the Nixon plant now, he said, but “there are possibilities of that happening.”