Somerset oil refinery will resume production in early fall

SOMERSET — Production is set to resume this fall at a decades-old oil refinery in Somerset that was largely offline the past few years because of a management dispute and bankruptcy.

Demetrios Haseotes, a New York entrepreneur with interests in convenience stores, truck stops and other businesses, bought the idled Somerset operation in December.

Employees and consultants have spent months going over tanks, pipes and other equipment at the plant to make sure it is in good condition.

That work didn't turn up any major problems, Haseotes said in an interview.

"We were very fortunate that the structural part of the plant was in very good shape," Haseotes said.

However, the flare system at the plant — which burns off excess gases — was too small and had to be replaced, Haseotes said.

If not for that work, the plant probably would have been ready to go by mid-September, he said.

The goal is to have the plant turning out gasoline, diesel fuel, kerosene and other products by early fall, Haseotes said.

There are 27 employees at the plant now, but that number is projected to grow to more than 40, said Missy Shorey, a spokeswoman for the plant.

The refinery now operates under the name Continental Refining Co.

It is one of only two refineries in the state. Marathon Petroleum Corp. operates the other facility, at Catlettsburg.

The Somerset refinery started operations in the 1930s. It provided an important market for small crude oil producers in nearby areas of Kentucky and Tennessee, and its affiliated gas stations were once familiar sights in the region.

In 2006, the refinery ran into financial trouble because the price of crude oil went up significantly, owners said later in a court document.

Suppliers sued, claiming the refinery had failed to pay for millions of dollars worth of crude oil.

The principal owners, Frank Lynch and Roy Shirley, sold the company to William Spears, who had a background in the coal industry, but Spears filed for bankruptcy soon after in 2007.

Spears said in a court that the prior owners had lied to him about the value of the refinery and siphoned off money.

Lynch and Shirley, however, said Spears misled them about having adequate money for the purchase.

A bankruptcy judge ultimately decided the refinery should be sold at auction.

New York real-estate executive Michael Grunberg bought the business in September 2008 for a total of about $2.4 million.

Grunberg got the refinery up and running in 2009 but closed it in February 2010. The refinery could not get a sufficient supply of crude oil, officials said at the time.

Grunberg said he thought the fact that some suppliers didn't get paid under previous owners made them reluctant to deal with the refinery.

Also, many producers took crude elsewhere while the Somerset refinery was shut down.

Haseotes recently announced a deal for Sunoco to supply crude oil to the plant, which is near a large rail-loading facility.

However, he also has worked to rebuild relations between the refinery and other regional suppliers, joining the Kentucky Oil & Gas Association and speaking at its June meeting.

Haseotes, who has not disclosed what he paid for the refinery, said he also met with one of the larger oil producers that lost money in the bankruptcy.

"I think everyone wants to move forward," he said.

Haseotes said he has a contract in place to market the fuels produced at the refinery.

His investment in projects at the facility could reach $10 million in its first two years, Shorey said in a news release.

The refinery can process 5,500 barrels of oil a day. That pales beside the Marathon facility, which is rated at 233,000 barrels a day, according to the company Web site.

However, Haseotes said the capacity of the Somerset plant probably could be doubled.

He said there is a question whether it would be better to boost the plant's production capacity generally, or just that of certain fuels.

Either way, he said, he's not looking for a quick cash-out on the refinery.

"My goal is the long term," he said.

At the time Haesotes bought the refinery, Shorey said he was head of Hemisphere Management Corp., which owned more than 30 convenience stores and truck stops from New England to Florida.

He founded Midland Farms Inc. in Menands, N.Y., which distributes dairy and other products in several states, Shorey said.

Haseotes also is an owner and past director of the Cumberland Group of Companies, which includes Cumberland Farms and Gulf Oil.

Haseotes' family started Cumberland Farms, which grew from a small dairy operation in the 1930s to include nearly 600 convenience stores in 11 states, according to its Web site.