Posted on January 19, 2010

Chevron to Shrink Refining Business, Cut Jobs

By George Avalos
gavalos@bayareanewsgroup.com

Chevron plans job cuts in its fuel production and retail operations, a potentially wrenching downsizing that clouds the outlook for its century-old refinery in Richmond. San Ramon-based Chevron has been forced into a far-ranging review of its downstream units — referring to its refinery, retail and marketing operations — because the economy has toppled into recession, drying up profits for that business.

"It is very difficult to make money in the downstream business," said Lloyd Avram, a Chevron spokesman. "The downstream market has been out of balance for some time."

Chevron notified retail, refining, marketing and transportation employees through a video message that a downsizing was in the works.

More details were due in March, which could include the number of jobs that will be lost. An assessment of how downstream units should be restructured may be complete by September. 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.

"It is possible that at some point we could make a decision to dispose of assets such as refineries," Avram said. "It is possible and likely that we will exit some markets."

But Chevron emphasized it hasn't made any decisions on what to do with any refinery, including the Richmond facility, another in California and one in Hawaii. Still, some Richmond officials have begun preparing for the possible closing of the refinery.

The City Council is due to meet in February "regarding the preparation of a contingency plan should Chevron abandon, sell or downsize operations," Richmond Mayor Gayle McLaughlin said.

The Richmond refinery employs 1,250. The refinery also provides about $26 million in annual property tax revenue for an array of public agencies. It accounts for at least 25 percent of the city's general fund revenue, which would equate to roughly $36 million in the current fiscal year.

Chevron has 18,000 downstream employees worldwide, including 4,400 in California. Analysts weren't surprised by the move to restructure and cut refinery and retail operations and jobs.

"Chevron is not making much money in refineries. Everybody involved in refining is having a hard time making money over the last year," said Jason Gammel, an analyst with Macquarie Research, an investment firm in New York.

During the final three months of 2009, Chevron's refineries lost more than $600,000 a day, according to a Deutsche Bank analyst.

As a result of the thin margins, Chevron could be reluctant to continue operating refineries that are outmoded. That's a problem that all refinery operators, not just Chevron, must confront, said Tina Vital, an oil and gas equity analyst with rating firm Standard & Poor's.

"Companies want refineries that are larger, more nimble and more flexible, with the ability to handle a wider range of crude-oil feedstocks," Vital said. "With the recession, a lot of refineries worldwide will have to permanently shut down."

Chevron is seeking approval to upgrade and modernize the Richmond refinery. Environmental and legal foes have stymied the efforts.

Union officials said the prospect of downsizing refinery operations was "unsettling," as Jeff Clark, secretary-treasurer of the United Steel Workers Local 5, put it. Local 5 represents numerous union workers at the Richmond refinery.

"We support having clean and safe refineries for our workers and for our communities. That's a great idea," Clark said. "But at some point, you have to look at whether all of these environmental regulations in the Bay Area make these facilities less competitive."

Yet even if the Richmond refinery isn't upgraded to fit in with the new world of crude oil, that is not a death knell.

"The Richmond refinery is in California, which has some of the highest refining margins in the world," Vital said.

Plus, the factory is near key markets such as Asia and the Pacific.