Chevron ax misses U.S. refineries
By George Avalos
Contra Costa Times
Posted: 03/09/2010 03:53:52 PM PST
Updated: 03/09/2010 04:04:11 PM PST
Chevron Corp. intends to keep its U.S. refineries open — including the vast complex in Richmond — at least for now, the energy giant said Tuesday amid a far-reaching restructuring.
Still, Chevron's quest to slash its global refinery, retail and marketing operations, also known as the downstream business, will unleash job cuts totaling 2,000 worldwide during 2010.
Some of the employment losses for Chevron's downstream units could surface in the Bay Area, where the job market is already dismal. The full extent of the downstream restructuring won't be known until late September or early October.
For the moment, though, the Richmond refinery appears to have dodged San Ramon-based Chevron's ax.
That seemed to be the case in the wake of comments by Chevron Chief Executive Officer John Watson after a company meeting in New York City with analysts Tuesday.
"We don't contemplate closing refineries," Watson said. "Our refineries are competitive, but the industry conditions are difficult."
However on Tuesday Chevron did say it will seek a buyer for its refinery in England and other assets in Europe. The company will also review operations in Hawaii and Africa.
Prospects for refineries in Richmond and elsewhere could gyrate.
"We will not speculate on potential outcomes from the global restructuring process," Comey said.
Chevron has yet to complete a full assessment of how to downsize its retail and refinery operations.
It's too soon to determine the effects in the Bay Area of the company's sweeping restructuring, the company said.
"We continue to review potential changes to ensure profitable operations," Comey said. "That review also involves refineries, including the ones in California."
The oil company's move to scale back downstream operations may be part of a strategy by Chevron to intensify its focus on its upstream business, which consists of exploration, development and production of energy.
"The integrated major oil companies can make so much more money on upstream," said Tina Vital, an oil and gas equity analyst with rating firm Standard & Poor's. "That's what Chevron is doing."
Increasingly, Chevron has expanded its pipeline by launching or developing mammoth projects such as liquefied natural gas sites in Australia and oil and gas fields in the Gulf of Mexico, South America and Africa.
"Chevron has quietly transformed itself into a producer of huge legacy projects," Vital said. "These projects will last 30 to 50 years."
The company said it would intensify exploration for new energy fields in Thailand, Australia, Africa and the Gulf of Mexico. It also plans to drill 68 exploration wells in 2010.
The various upstream initiatives will likely increase annual production by 4 percent to 7 percent from 2014 through 2017, Chevron told analysts. That would be a jump from the annual production growth of 1 percent that's projected from now through 2014.
It's no surprise that Chevron has decided to trim its refinery, retail and marketing operations, said Robbert Van Batenburg, head of equity research with Louis Capital Markets.
"Downstream is a horrible business to be in," Van Batenburg said. "Demand for gasoline has struggled because of the recession and the credit crisis."
During the final three months of 2009, Chevron's refineries lost more than $600,000 a day, analysts estimated.
"The integrated oil and gas producers have decided to scale back or largely divest themselves from downstream," Van Batenburg said.
During 2009 and 2010, the Chevron job cuts in the downstream business are expected to total 3,900, including 1,900 in 2009 and the 2,000 this year. More job cuts could occur in 2011.
"We are concentrating on markets that represent our greatest competitive strength and opportunities for growth," Comey said.
Contact George Avalos at 925-977-8477