Flying J Inc., the oil refiner and retailer, and one of the largest privately held companies in the United States, filed for bankruptcy on December 22, 2008. Flying J, and some of its related entities (the "Debtors"), filed their chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware. The bankruptcy proceeding is before the Honorable Mary F. Walrath, former Chief Judge of the Delaware Bankruptcy Court.
According to the Debtors’ Declaration in Support of First Day Pleadings, Debtors began in 1968 with four retail gas stations and by 2007 grew to a "fully integrated oil company" with sales exceeding $16 billion. Debtors operate over 200 "travel plazas" on highways in 41 states. The Debtors’ plazas combine retail stores with restaurants, motels and tractor trailer service centers. Debtors also offer banking, wireless Internet services and insurance.
Events Leading to Bankruptcy
Months ago, many chapter 11 debtors were forced into bankruptcy due to the high fuel prices which peaked during the summer of 2008. The Flying J Debtors, on the other hand, faced a liquidity crisis following the drop in oil prices beginning in September of 2008. Debtors’ problems worsened with the tightening of credit markets.
Debtors employ over 16,000 people through its retail, refining, financial services and communications operations. Debtors’ "core businesses" focus on petroleum refining and distribution. A look at Debtors’ ten largest unsecured trade creditors shows that oil refining and distribution are central to its operations. These creditors include:
- Conoco Phillips … $69 million
- Berry Petroleum … $26 million
- Houston Refining … $19 million
- BP Oil … $17 million
- Shell Trading Co. … $11 million
- Plains Marketing … $11 million
- Valero Marketing … $10 million
- Marathon Oil … $10 million
- Koch Refining … $8.9 million
- Occidental Energy … $4.8 million
Debtors operate refineries in Salt Lake City, Utah and Bakersville, California. Combined, these two facilities have production capacity of 100,000 barrels of crude oil per day. In addition to its refineries, Debtors operate a 700 mile pipeline that transports oil from the Gulf of Mexico to the interior of Texas.
Like with other oil distributors in bankruptcy, the Flying J Debtors will likely spend a substantial amount of time addressing the priority and validity of statutory liens and related claims filed by oil producers. Volatility in oil prices will also play a prominent role in the Debtors’ ability to effectively reorganize.