Current DAL Stock Info

North Dakota crude will arrive at Delta’s in-house refinery by rail

Delta Airlines (ticker: DAL), through its refining subsidiary Monroe Energy LLC, has inked a deal with midstream supplier Bridger LLC to supply 65,000 BOPD of Bakken crude oil to its Trainer, Pa., refinery, which Delta will use to power a portion of its 700+ passenger jets.

Delta flies passengers to 333 destinations in 64 countries. Its No. 1 expense is jet fuel, and the company has pinpointed its focus on managing fuel costs any way it can—through weight reduction, streamlining refueling practices, hedging, purchasing more efficient aircraft, and its 2012 acquisition of the former ConocoPhillips (ticker: COP) refinery for $150 million, which allows the airline to control supply and pricing of its own jet fuel.

“The lower-cost domestic crude from the Bakken oil fields in North Dakota replaces more expensive crude that historically has been shipped to the refinery from overseas,” Delta said in a news release this week.

“This transaction reflects our commitment to deploy midstream assets to link upstream domestic producers with downstream refineries to further promote U.S. energy independence,” said Julio E. Rios II, President and Chief Executive Officer of Bridger. Bridger said its new crude oil tank cars “will be among the mix of assets” it uses to transport the crude oil to Delta’s refinery.

“Supplying a third of the crude refined at Trainer from the Bakken further reduces the overall cost of fuel for Delta, adding to the significant benefits we already see from Monroe Energy, in combination with our robust fuel hedging program, fleet efficiency improvements and fuel conservation efforts,” said Graeme J. Burnett, Senior Vice President – Fuel Optimization for Delta and chairman of Monroe.

The Trainer refinery turned a profit in the third quarter [2013] for the first time, bringing in $3 million, according to a report on CNBC. “As a result, the price Delta paid for a gallon of jet fuel dropped 5.4 percent to $2.97 during the quarter. Though its overall fuel costs increased 3 percent, which Delta attributed to an increase in flying capacity,” the report said.

“It’s given us the ability to participate in the pricing of jet fuel in the United States,” Delta CEO Richard Anderson told CNBC. “When you give up 35 to 40 percent of your business, you’re not going to be successful. We’re of the view at Delta that we control 100 percent of our business and it’s our responsibility to navigate high fuel prices.”

Some of the airline’s other fuel reduction efforts include: modifying 757 center wing tanks to safely eliminate the need for 1,000 pounds of fuel, a savings of 1 million gallons of fuel annually; installing winglets on 737s, 757s, and 767s, improving fuel efficiency by 3-4 %; initiating single-engine taxi procedure which saves more than 7 million gallons of fuel per year; adjusting the amount of water boarded for each flight to anticipated usage; replacing heavy meal carts with lightweight meal carts, savings 2.2 million gallons of fuel annually; initiating more efficient flight planning, dispatch procedures, flight ops procedures and ATC initiatives, which generates savings of approximately 70 million gallons every year.

Delta’s fact sheet says the airline’s efforts improved fuel efficiency by 35 % between 2000 and 2010.

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