Valero Energy, the largest US oil refiner, plans to buy Chevron’s UK refinery for about $2 billion, said two people with knowledge of the deal.
An agreement has been struck and an announcement may be made today, said one of the people, who declined to be identified because the deal hasn’t been made public. Chevron has been seeking a buyer for the Pembroke refinery in Wales, its last European plant, for almost a year. The offer, expected to be in cash, includes the plant’s inventory of crude oil and refined products, according to one of the people familiar with the matter.
“I can say that we’ve been very explicit about our desire to explore our options in Europe,” said Bill Day, a spokesman for San Antonio-based Valero. Day said the company doesn’t comment on speculation about potential purchases.
Chevron, based in San Ramon, California, is among oil companies selling refineries to cut debt and redeploy spending to oil exploration and development in higher growth regions. Valero hasn’t bought a refinery since its 2005 acquisition of Premcor Inc., and has sold four refineries in that time, two on the US East Coast.
Chevron’s view is that “you get better returns upstream than you do downstream,” said Mark Samter, an analyst at CLSA Asia-Pacific Markets in Sydney who covers refiner Caltex Australia, half-owned by Chevron. “Refining is a pretty ugly business. In good cycles, you make a decent return, probably three or maybe four years every decade, and arguably we’re going structurally into a cycle that’s broken.”
Stanlow sale
The refinery’s almost $2 billion price tag is about twice the amount offered by India’s Essar Group for Royal Dutch Shell’s Stanlow refinery in the UK, when adjusted for size.
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Chevron, the second-largest US oil company, said on March 21, 2010, that it planned to sell Pembroke. The refinery can process 210,000 barrels of crude a day, or about 11 per cent of total UK capacity, according to Bloomberg data.
SeanComey, a spokesman for Chevron, declined to comment in an e-mail yesterday.
While margins from turning crude into fuel may improve during the next 12 months to 18 months, countries are adding more refining capacity to increase energy security, “not on an economic rationale,” CLSA Asia-Pacific’s Samter said.