With Chevron promising to reveal all in March, speculation over the future of the Richmond refinery continues. With all its hand wringing over “downstream” losses, we note that Chevron’s stock value is trending better than all of its competitors (see http://www.google.com/finance?client=ob&q=NYSE:CVX). All oil companies’ stock has taken a hit over the last few days after trending upward for most of 2009, and all but Chevron show a modest loss while Chevron posted a modest gain.

 

On February 23, the Richmond City Council will hold a study session on “Life After Chevron” to better understand what the consequences would be if Chevron sold, abandoned, downsized or transformed its Richmond refinery.

Chevron's fight with Richmond intensifies

David R. Baker, Chronicle Staff Writer
Saturday, January 30, 2010
Greg Karras has heard the talk about Chevron Corp. possibly pulling out of Richmond.
He isn't buying it.

Karras is a senior scientist of an environmental group fighting Chevron's plan to upgrade its Richmond refinery, which has occupied a spot on the city's western edge for more than a century.
To him, recent hints from Chevron executives that they might leave Richmond unless they get their way ring hollow. Although they're low right now, refinery profit margins tend to be higher in California than they are elsewhere in the country, he said. Chevron isn't likely to sell or close the third-largest producer of gasoline in the state.
"It's not going to happen - not to this refinery," said Karras, with Communities for a Better Environment. "Here you've got the California market, a gold mine for any refinery, and a new refinery is very unlikely to be built. If it's profitable to sell gasoline, diesel and jet fuel in California, Chevron's not going to close the Richmond refinery."

Negotiating tactic

Many of the people sparring with Chevron in Richmond - over the refinery expansion as well as a $20.5 million tax dispute - don't believe the company will leave. Some consider the executives' hints of departure a negotiating tactic. Chevron's announcement this month that it needs to cut jobs throughout its worldwide refining operations and possibly sell some facilities didn't change their minds.
"It seems like they've got something that's working and making money," said Richmond Mayor Gayle McLaughlin, a frequent Chevron critic.
The City Council, she said, will discuss the possibility that the refinery could change hands or close. But she doubts either will happen.
"We're basically going to look at all the potentialities," McLaughlin said. "But I do think that because it is a profitable refinery, this probably won't result in a closure."
Chevron, based 35 miles away in San Ramon, won't say which of its refineries around the globe will close or be sold. Those details will be revealed in March.
Chevron spokesman Sean Comey said the company wants better relations with Richmond, but the city's business environment leaves something to be desired.
"The refinery was there before the town was incorporated, and historically it had been a good place to do business," he said. "Right now, there's some opportunity for improvement."
Oil companies rarely disclose profits for specific refineries, lest they give competitors too much information. But in a New York Times article last fall, the head of Chevron's global refining operations said Richmond ranked in the "lowest tier of earnings" among the company's refineries. "Refineries that don't make money don't stay open," he warned.
And yet, California refineries typically enjoy some of the nation's highest profit margins. The state uses unique gasoline blends designed to fight air pollution, and only a small number of refineries make those blends. Limited competition has, for most of the past decade, made California the place to be for refiners.
Refining industry profits can be tracked, roughly, by looking at the difference between the price of the oil that refineries use as raw material and the price of the products that they make, a measure known as the "crack spread." Last year, the crack spread for West Coast refineries averaged $14.83 per barrel of oil. For refineries on the Gulf Coast, it averaged $8.18.

Demand down

These days, all refineries are hurting, in California and throughout the country. The recession has driven down the demand for gasoline, as Americans try to save money by driving less. Even with high gas prices, averaging more than $3 per gallon in California, refineries are losing money. In such a bleak environment, Chevron might contemplate closing or selling its Richmond site, said Brian Youngberg, senior energy analyst with investment company Edward Jones.
"I doubt that they would close it, but I don't think it's necessarily out of the realm of possibility," he said. "I really think they're re-looking at their entire portfolio. If they feel they need to make significant improvements in Richmond, and they're getting pushback, they might consider it."
Chevron is Richmond's largest employer, with 1,250 people at the refinery and 1,350 at a research and technology center. The company's relationship with the community has been turbulent.
In 2008, Richmond voters approved a new tax on the refinery, based on the value of the crude oil it refines. A judge ruled the tax unconstitutional in December, saving Chevron $20.5 million.
Another courtroom fight has gone badly for the company. Last summer several organizations, including Communities for a Better Environment, persuaded a judge to block the refinery's upgrade and expansion. The company had not answered key questions about the project in its environmental impact report, the judge ruled. Settlement talks between Chevron and the plaintiffs have, so far, produced no results.
Chevron executives have not explicitly said that the company would leave Richmond. Instead, in comments to the New York Times and National Public Radio, they have suggested that if they can't upgrade the refinery, their relationship with the city might end in "divorce."
To Karras, those comments sound familiar.
Nearly 10 years ago, owners of another Bay Area refinery embroiled in an environmental dispute threatened to close their facility. The Tosco refinery (now owned by Tesoro Corp.) had been ordered by the San Francisco Bay Regional Water Quality Control Board to cut the amount of dioxin it released into the environment. Company executives said the changes would cost too much, and they threatened to shutter the facility, located near Martinez.
The board backed down. Two weeks later, Tosco announced that another company, Ultramar, had agreed to buy the refinery. The sale had to be in the works before the showdown with the water board, Karras said.
"Lo and behold, the water board granted their request," Karras said. "It was clearly and obviously an empty threat. It clearly and obviously put pressure on the environmental agencies."
And yet, California refineries face significant uncertainties about the future.

State rules

As part of the fight against global warming, California is developing a cap-and-trade system that would put a price on carbon dioxide emissions. The state also has adopted a "low-carbon fuel standard" that will force refiners to reduce the carbon intensity of the fuels they sell. Both will probably prove expensive for refiners.
If the entire country adopts those measures, refineries throughout the country would face similar costs. But if the federal stalemate over climate-change legislation continues and California goes it alone, refineries in the state would be at a disadvantage, said Catherine Reheis-Boyd, president of the Western States Petroleum Association, an oil industry lobbying group.
"We've got companies that are looking at every investment dollar, every investment and where they're going to make it," she said. "And I can tell you, California is not at the top of the list."
E-mail David R. Baker at dbaker@sfchronicle.com.
This article appeared on page DC - 1 of the San Francisco Chronicle

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/29/BUS51BNU1H.DTL&tsp=1#ixzz0e7R6TLDz

Chevron profit falls 37 percent, refinery and retail units lose $613 million

By George Avalos
Contra Costa Times
Posted: 01/29/2010 06:39:56 AM PST
Updated: 01/29/2010 06:50:48 AM PST

San Ramon-based Chevron earned $3.07 billion, or $1.53 a share, in the October-December period. During the fourth quarter of 2008, Chevron earned $4.9 billion, or $2.88 a share. Last year's profits were buoyed by a one-time gain of $608 million from the sale of some assets.
The report, though, was a tale of two companies. Chevron's upstream business —consisting of exploration, development and production — powered to a profit of $4 billion, up $851 million from the year before. The downstream operations — refining, marketing and retail sales — was a money-loser.
"Earnings decreased in 2009 as a result of lower crude oil and natural gas prices and a decline in refined product sales margins, driven by a weak global economy," said John Watson, Chevron's chairman and chief executive officer. Watson took over this month as CEO after the planned retirement of David O'Reilly.
The company earlier in January said it plans to slash jobs in its fuel production and retail operations. The potential downsizing clouds the outlook for its century-old refinery in Richmond.
The energy giant could sell or close some refineries, or scale back the retail markets in which it competes, as a result of the assessment. Further details were due in March.
The company said profit margins were weak for its refinery business during the fourth quarter.
Chevron's upstream operations have been the brightest part of the company's financial picture
in recent quarters. The company's previous CEO, O'Reilly, had embarked on a quest to increase Chevron's exploration and energy production business.
The company said its production of oil and natural gas increased 9 percent during the fourth quarter.
In the final three months of 2009, the company announced several deals to sell liquefied natural gas from a field Chevron is developing in the ocean near western Australia.
Chevron also announced the discovery of new natural gas fields off the coast of northwest Australia and said it would invest in the development of an oil field in waters off Brazil.
"Our financial strength enabled continued investment in our excellent portfolio of capital and exploratory projects and an increase in the annual dividend on our common shares for the 22nd consecutive year," Watson said.
Chevron's shares rose 0.7 percent in early trades.
Contact George Avalos at 925-977-8477