Somerset Refinery entering 80th year as Somerset icon

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This building is on of the properties included in the Somerset Refinery purchase by Continental Refining Company.

December 15, 2011

by Ken Shmidheiser Commonwealth Journal The Commonwealth Journal Thu Dec 15, 2011, 10:34 AM EST

Somerset — Despite changing names and management over the decades, Somerset's beleaguered Monticello Street crude oil refinery is most fondly known here as simply "Somerset Refinery."

The purchase of the refinery being announced to Commonwealth Journal readers in the accompanying article today marks another landmark in the history of the 80-year-old Somerset industrial icon.

The refinery was founded by R.C. Snyder in 1932. Snyder sold the company to Samuel Jarvis, an Illinois-based crude oil producer, in 1946.

The company’s employees purchased the refinery from the Jarvis family in 1963. It was employee-owned and operated between 1963 and 1999. Some of the better-known officials of the employee group included Cy Waddle, W.T. Walker, Bill Balance and Merrel Henderson.

In 1999, Roy Shirley and Francis (Frank) Lynch acquired all of the Somerset Group’s stock. Later that year James Stethem joined the Somerset Group as secretary and general counsel and purchased 20 percent of the company’s capital stock. Lynch served as president of the Somerset Group while Shirley was CEO.

However, the aging refinery ran into financial trouble and was shut down in late 2006. Eastern Kentucky businessman William Spears acquired the refinery from Lynch and Shirley in 2007 under the umbrella of the Sonoma Capital corporation, only to immediately commence layoffs and file for bankruptcy protection.

When the facility went up for sale in bankruptcy court in early 2008, Spears attempted to buy it out of bankruptcy and cast the high bid. Although the federal bankruptcy court accepted Spear's bid, he was not able to raise the money and the transaction failed.

The courts again ordered the refinery to be sold at auction—a transaction handled by Tranzon Asset Advisors.

That auction caught the eye of international entrepreneur Michael Grunberg, principal of New York City's Grunberg Realty who purchased the refinery for $2.2 million later in 2008. Grunberg began operating the refinery through Somerset Energy Refining (SER), LLC.

SER spent the next two years and another $20 million modernizing the Monticello Street plant to meet current EPA standards. In October 2009 the refinery enjoyed its first profitable month since being rescued from bankruptcy, and a month later employment peaked at 66 persons.

However, SER made a strategic mistake in embracing the legacy of Somerset Refinery. Regional crude oil suppliers who had been left holding the bag following the failure of Grunberg’s predecessors, didn’t share the entrepreneur’s vision.

“Sadly, under prior ownerships, the refinery’s reputation had suffered. Much of the company’s debt had gone into insolvency during bankruptcy proceedings, and many local suppliers to the former owners were never paid. That left a really bad taste in their mouths,” Ed Phelps, IT director and spokesman for SER, acknowledged to the Commonwealth Journal in an early 2010 interview.

Many of those disillusioned local crude oil suppliers — including “mom ‘n pop” operations with a small pump putting out a few barrels of crude a week — had begun selling to Marathon Oil, which ran trucks between here and its refinery in Ashland... and paid promptly.

SER hit a stone wall trying to convince those local crude producers to end their relationships with Marathon and sell their oil here.

The death knell for SER was sounded when its largest supplier of crude stopped selling to the company at the beginning of 2010, and instead began shipping its products to Marathon.

“We simply weren’t able to buy enough crude oil to process to keep our doors open,” Phelps said at the time.

Grunberg decided to cut his loses, laid off the staff, and closed the refinery's doors.

A skeleton crew has since keep the plant in “idle mode.”

However with today's announcement that Continental Refining Company has purchased the refinery and plans to begin production in about six months, it again appears that the refinery will again become a viable industrial asset for Somerset and Pulaski County.

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