Chevron May Sell Refineries as Falling Demand Shrinks Margins

Thursday, Dec 04, 2008

Chevron Corp., the world’s fourth- largest oil company, may sell some refineries as recessions in the world’s largest economies cut demand for gasoline and diesel, squeezing fuel-production margins.

The San Ramon, California-based company wants to focus on higher-profit ventures such as natural-gas production offshore Australia and oil developments in the Gulf of Mexico and West Africa, John Watson, executive vice president of strategy and development, said today in a presentation to an energy conference in New York sponsored by Merrill Lynch & Co.

Watson declined to say which, or how many, refineries may be sold. Chevron’s refining profit fell 59 percent during the first nine months of 2008 as crude soared to a record and fuel prices failed to keep pace. The refining unit’s contribution to total profit dwindled to 7.1 percent during the first three quarters of this year from 24 percent a year earlier.

“It’s shaping up to be a difficult year for the refining business,” said Watson, formerly chief of Chevron’s international exploration business. “The margin environment has been relatively weak.”

Chevron operates or owns stakes in 18 plants that can process 2.94 million barrels of crude a day. The company’s last refinery-related divestiture was in 2007, when it sold a 50 percent stake in a Netherlands plant to London-based BP Plc for $900 million.

EnCana, Husky Investments

Oil producers such as Calgary-based EnCana Corp. and Hong Kong billionaire Li Ka-shing’s Husky Energy Inc. have been investing in refineries to handle increasing crude production in Canada’s tar sands.

EnCana agreed to pay more than $2 billion two years ago for stakes in ConocoPhillips’s plants in Illinois and Texas. Husky acquired a Valero Energy Corp. refinery in Ohio last year for $1.9 billion.

The spread between U.S. fuel prices and the cost of crude shrank 57 percent this year, based on benchmark gasoline, heating-oil and oil futures traded in New York.

Chevron plans to continue divesting filling stations and retail fuel-distribution networks in low-profit markets, Watson said. Shedding those businesses will cut annual operating costs by $700 million, he said.

In the past two years, Chevron exited retail fuel markets in Norway, the Philippines, Uruguay, the Netherlands, Kenya, the U.K. and Nigeria.

‘Refining Rationalization’

Source: Bloomberg