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Chevron-Texaco Poormouths Over Richmond Refinery
August 5, 2003

According to a story posted yesterday in the East Bay Business Times, ChevronTexaco is considering closing or selling its Richmond refinery or converting it into a terminal. After quadrupling profits in a year, ChevronTexaco aims to cut $150 million in costs at the Richmond facility. Refinery Manager Whiteside bragged that he had already cut $20 million, $1.4 million of which (we note) was from refusing to pay Richmond’s Utility User tax increase while every other business and resident paid up.

The source says that “Whiteside said he intends to achieve the full $150 million in savings in just two years and retire early with a large bonus.”

Chevron poormouthing is a periodic phenomenon in Richmond and is usually timed to coincide with impending requests for concessions from local government agencies and regulators.

The entire story follows.

ChevronTexaco pressures refinery to boost profit or close

Alan Doyle

Despite carefully worded public statements implying the contrary, ChevronTexaco Corp. is considering closing its Richmond refinery - the largest in the East Bay - or converting it to a bulk terminal if profit doesn't improve dramatically over the next three years.

As part of its "Project Zeus" global reorganization, the San Ramon-based oil giant also is considering possible sale of the 225,000 barrel-per-day refinery, the East Bay's largest and California's third-largest, if profits don't increase by at least $150 million in that period.

That's what the refinery's new general manager, Jim Whiteside, has told the plant's 1,400 employees and its outside contractors, who already have seen 800 jobs vanish in the wake of Whiteside's rapid, far-reaching austerity moves.

Although such shutdown threats aren't uncommon when refiners are attempting to win concessions from employee unions or contractors, industry sources familiar with ChevronTexaco and Whiteside's reputation as a no-nonsense cost-cutter believe he isn't bluffing - and has the backing of David J. O'Reilly, ChevronTexaco's chairman and CEO.

"He's serious," said one industry source. ChevronTexaco may decide not to close or sell the refinery because of political repercussions and (environmental) cleanup costs, but it's on the table."

In carefully worded statements over the weekend, accompanying second-quarter earnings reports showing ChevronTexaco quadrupled profits from the same period in 2002, company spokesmen reiterated a corporate commitment to West Coast refineries and the California market, the biggest and one of the most lucrative in the nation. ChevronTexaco's West Coast refineries are in Richmond and El Segundo.

"That's not necessarily inconsistent," one industry source, who's talked with Whiteside, said Monday. "ChevronTexaco's not going to leave the California market. But if they can't make money refining in Richmond, they'll make the gas somewhere else and bring it in."

Whiteside already has cut some $20 million in costs in his first four months on the job, according to contractors who at least temporarily have lost work at the huge refinery. The contractors declined to be identified for fear of being cut off permanently.

Richmond refinery spokesman W.W. "Walt" Gill said shortly after Whiteside arrived in March that the new general manager would be too busy running the refinery to meet with a reporter.

Calls to the refinery Monday were referred to corporate headquarters in San Ramon for comment.

"ChevronTexaco is constantly looking for ways to increase the efficiency of its operations," said Stan Luckoski, a corporate spokesman. "However, we are not going to comment specifically on our business planning process or our future plans."

Part of that planning process, according to sources close to the company, is "Project Zeus," the code name given to the worldwide analysis of operations that's looking for savings in the wake of Chevron Corp.'s. $44 billion purchase of Texaco Inc. in 2001 to create the nation's second-largest integrated oil company.

Former General Manager Rick Zaleski, who had been in Richmond since 1999, was transferred to San Ramon this year to join the "Project Zeus" team. Zaleski took several key managers with him, according to sources familiar with Richmond refinery operations.

The cost-cutting analysis already has resulted in global reorganization from geographical to functional lines and the decision to sell up to $2 billion annually in underperforming assets during the next three years.

Closure of the 102-year-old Richmond refinery, or conversion to a facility storing California-specification fuel made at another refinery, could cost most of the plant's 1,400 employees their jobs. And it could cost as many or more skilled jobs created by the specialized contracting companies that work on routine maintenance and major construction projects inside the plant.

But such a move to a bulk terminal, which could be supplied by pipelines or tankers, would save ChevronTexaco as much as a nickel per gallon in costs, while avoiding California's and the Bay Area's expensive environmental restrictions, the toughest in the nation.

While the refinery's closing would have a minimal effect on ChevronTexaco's global operations, it would have a profound effect in Richmond. West Contra Costa's largest city has been a Chevron company town for the better part of a century. Richmond depends on ChevronTexaco's property tax payments for 17 percent of its general fund revenues.

ChevronTexaco has promised additional cuts to boost profits that have disappointed Wall Street since the merger. A merger-created accounting barrier expires in October, allowing ChevronTexaco to begin moving rapidly.

In comments accompanying the second-quarter earnings report on Aug. 1, O'Reilly said ChevronTexaco would focus on bringing U.S. and Asian refineries up to world-class status by 2005.

"We are transforming the downstream into a leaner, more efficient business," O'Reilly said in a statement.

Whiteside built a reputation as a cost-slasher in prior assignments in Southern California and New Jersey, reducing labor costs by 30 percent to 40 percent, according to industry sources.

The 24-year Chevron veteran took over in Richmond on March 1. Whiteside previously was assigned to Richmond during his rise through the corporate ranks.

At a July meeting with contractors to tell them he was canceling maintenance contracts until he could assess whether the work could be done more economically in-house, Whiteside said his assignment, with O'Reilly's knowledge, is to add $50 million to the bottom line in each of the next three years, according to contractors who attended that meeting and a second late in the month.

Whiteside said he intends to achieve the full $150 million in savings in just two years and retire early with a large bonus, according to those contractors.

Their accounts were corroborated by oil industry sources who said they've heard Whiteside make the same statements in other conversations outside the refinery.

Reach Doyle at adoyle@bizjournals.com or 925-598-1404.