March 10, 2010 at 10:39 am #2744
Chevron to Sell Refinery, Cut 2,000 Jobs Through 2011 (Update5)
By Joe Carroll
March 9, 2010 (Bloomberg) — Chevron Corp., the second-largest U.S. energy company, plans to sell its only remaining European refinery, cut 2,000 jobs and shed assets in the Caribbean and Central America to stanch losses from its fuel-making business.
Chevron also plans to slash capital spending on refineries by 23 percent this year and may reduce operations at a plant in Hawaii, Mike Wirth, executive vice president of the company’s global refining and marketing business, said in a presentation to analysts today in New York.
Chevron’s refining unit lost $613 million during the fourth quarter of 2009 as fuel demand sank, hindering Chief Executive Officer John Watson’s goal of generating returns of at least 10 percent from each plant. The job cuts announced today will shrink the company’s refinery workforce by 12 percent.
“Refining margins have been very, very thin, especially in Europe, so it may make sense to shut some capacity there,” said Louis Gagliardi, an analyst at IHS Herold in Norwalk, Connecticut. “They probably wouldn’t touch anything in Asia because they’re so well-positioned for growth there.”
Chevron fell 34 cents to $74.30 at 4 p.m. in composite trading on the New York Stock Exchange. The shares have gained 28 percent in the past year.
The company plans to quit refining crude in Europe by selling its Pembroke plant in Wales. The facility can process 210,000 barrels of crude a day, or about one in every eight barrels refined in the U.K. The company began a review process last year to turn the Hawaii refinery into a storage terminal, Wirth said. That option now is “off the table,” spokesman Lloyd Avram said after the presentation concluded.
Watson, 53, is contending with collapsing demand for gasoline and diesel, reduced access to some of the world’s biggest remaining resources, and a mounting exploration failure rate. Watson succeeded David O’Reilly as CEO in January.
The San Ramon, California-based company is cutting its budget for refinery upgrades and maintenance to $2.4 billion this year from $3.1 billion in 2009, Wirth said.
The 2,000 job cuts through 2011 announced today will follow 1,900 positions eliminated in 2009 in Chevron’s refining and marketing business, Avram said. The company reduced operating expenses in the business by $400 million in 2009.
Chevron, which triggered the Saudi Arabian energy boom with the 1938 discovery of oil in the kingdom, had 64,000 employees at the end of December, including 4,000 that worked in company- operated retail gasoline stations or related businesses. The refining business accounts for 17,000 positions, Avram said.
Oil futures traded in New York rose at almost twice the rate of U.S. retail gasoline in the past year, as tracked by the Energy Department in Washington. The disparity between feedstock costs and prices for finished products made it impossible for some fuel makers to turn a profit, prompting plant shutdowns from New Mexico to the Atlantic seaboard.
More than 1,000 retail gasoline stations and 60 fuel- storage terminals will be sold as Chevron reduces the number of countries where it makes or sells motor fuels by more than half.
“They are going to a shrink-so-you-can-focus strategy,” said Jonathan Dison, a managing director at San Francisco-based Bender Consulting, which has advised Chevron and Tesoro Corp. “Refining margins clearly are narrowing and that’s a result of increasing international capacity and the fact that demand for refined products is still weak.”
The margins earned from processing crude oil into fuels such as gasoline and diesel will remain “weak” through 2015 as refining capacity rises faster than demand, said Wirth, a University of Colorado-trained chemical engineer.
“We get decent but not spectacular returns out of our refineries,” Wirth told analysts today. “Less competitive facilities are likely to drop out of the market.”
Chevron spent $2.43 million a day last year on equipment and repairs required to comply with U.S. environmental limits on air and water pollution, according to a public filing by the company. Chevron expects such expenses to drop by 6.2 percent in 2010, the filing showed.
Oil and gas production will grow at an average annual rate of 1 percent for the next five years before rising to 4 percent to 5 percent a year after that, Vice Chairman George Kirkland said during today’s presentation. Chevron is spending almost $60 million a day to find crude and build offshore platforms to exploit previous discoveries.
Chevron made successful finds last year in Australia, Angola and the Gulf of Mexico, including the Buckskin No. 1 well, which encountered a 300-foot column of oil-soaked rock, according to the company’s Web site.
The company’s 6.3 percent profit margin in 2009 exceeded that of The Hague-based Royal Dutch Shell Plc, which earned 4.5 cents on every dollar of sales, ConocoPhillips of Houston, which had a 3.3 percent margin, and Norway’s Statoil ASA and Calgary- based Suncor Energy Inc., which had profit margins of 4 percent and 4.6 percent, respectively.
Exxon Mobil Corp. of Irving, Texas, and London-based BP Plc outperformed Chevron in 2009 with 7 percent profit margins, according to data compiled by Bloomberg. Exxon is the largest U.S. energy company.
To contact the reporter on this story: Joe Carroll in New York at firstname.lastname@example.org Last Updated: March 9, 2010 16:04 EST
You must be logged in to reply to this topic.