Oil Refiners Step Up Drive Towards Restructuring
Mondays announcement of plans by Texaco, Shell Oil and Star Enterprise to pool their refinery and retailing assets is expected to send other groups scurrying to the negotiating table.
Phillips Petroleum and Conoco, which recently abandoned a similar $5 billion scheme because of a squabble over the value of the assets involved, will now have fresh incentive to try again.
Ultramar and Diamond Shamrock, which last month announced plans to merge into a group with $8 billion annual revenues, will have good reason not to fall out before the deal is consummated. Integrating the trios networks of 19 refineries, pipelines, storage facilities and petrol stations would give the partners 10-30 per cent of densely-populated regional markets spanning the US.
The talks mark a determined effort by the oil majors to reassert control in their most important market, where refining margins last year dipped to 33 cents a barrel, the lowest level on record.
The project also amounts to an acceptance that efforts to avoid the vagaries of the spot oil market by forging international alliances Texaco with Saudi Aramco and Shell with Mexicos Pemex are no substitute for resolving their difficulties at home.
As one official noted: This is an industry where no one is making any money. It is time to look for synergies.
Although observers say excess refinery capacity is less of a problem than across the Atlantic, capacity has crept up and there have been no significant closures. Nor are any expected from the latest merger negotiations.
With almost 30,000 owned or affiliated retail outlets, and sufficient feedstock buying power to ensure keenest prices both in the oil market and at the pump, the new combination will make optimum use of its refineries.
Bankers do not expect difficulties with antitrust authorities, which have shown an increased tolerance for large-scale mergers.
Chevron, they add, already controls more than 30 per cent of the West Coast petrol market.
However, they admit there is room for dissent over future branding policy. Since projected cost savings of up to $2 billion a year are likely to include a sharp reduction in promotional and advertising expenditure, the maintenance of three brands is likely to be seen as a luxury the partners cannot afford. Texaco and Shell are both well-established across the US, while Star product of the joint venture between Texaco and Saudi Aramco is limited to the east of the country.