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San Diego Union Tribune: Oil company in talks with potential buyers

San Diego Union Tribune: Oil company in talks with potential buyers

“the attorney general will continue an antitrust probe of Shell. The Federal Trade Commission also has been investigating the proposed shutdown.”

By Craig D. Rose
August 14, 2004

Shell Oil Co. says its Bakersfield refinery is uneconomical because crude oil supplies in the area are declining.

Shell Oil Co. said yesterday it will delay closing its Bakersfield oil refinery to allow more time for a possible sale of the facility, which produces 2 percent of the state’s gasoline and 6 percent of its diesel oil.

Shell said it is in discussions with several potential buyers and will keep it open at least through Dec. 31 and probably through March 31, 2005, six months beyond the earlier shutdown date of Oct. 1.

Announced in November, Shell’s plan to shutter the refinery drew sharp criticism from consumer groups, which said the company was seeking to tighten gasoline supplies at a time when prices were at record levels. Shell said declining oil production in the Bakersfield area made the plant uneconomical.

At the time, the company indicated no plan to seek a buyer for the refinery.

But Shell’s claim that the plant was uneconomical soon came under challenge.

An oil industry consultant hired by Attorney General Bill Lockyer concluded this summer that the refinery could be run profitably and that a sale could be viably structured for both Shell and a buyer.

“I’m extremely pleased with Shell’s decision,” Lockyer said yesterday. “It’s a welcome show of cooperation with our effort to keep open this refinery, which is crucial to helping protect California drivers from even higher gas prices than they already pay.”

Tom Dresslar, a spokesman for Lockyer, said the attorney general will continue an antitrust probe of Shell. The Federal Trade Commission also has been investigating the proposed shutdown.

In a news release issued by Lockyer’s office, Shell President Lynn Laverty Elsenhans said the company will continue making a good-faith attempt to sell the facility.

“What this does is allow the sales process to mature and will provide additional time for Shell to explore a sale with any and all prospective buyers,” Shell spokesman Stan Mays said in an interview.

Asked about how Shell’s plans evolved from a shutdown to a possible sale, Mays said: “Our view on the viability of the plant has not changed. It’s just that we had enough interest from parties looking at purchasing it.”

Experts have said that while oil production is declining in the Bakersfield area at a rate of 3 percent to 5 percent annually, there are still large amounts of crude oil in Kern County, where output surpasses every state except Texas and Alaska.

The proposed closure prompted outrage from politicians and consumer leaders who argued the dismantling would further squeeze supplies and inflate gasoline prices for California motorists, who have long paid the highest prices in the nation.

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, called Shell’s decision a “major victory for consumers.”

He credited Lockyer, as well as Sens. Barbara Boxer, D-Calif., and Ron Wyden, D-Ore., for listening to whistle-blowers who provided documents showing that the facility was profitable.

“I don’t know of another instance in which an oil refiner has yielded to pressure from legislators and consumers to keep their refinery open,” Court said.

“It is a sad testament to anticompetitive nature of the gasoline market, however, that it took regulators, legislators, whistle-blowers and consumer groups to force an oil company to sell a refinery for over $100 million rather than demolish it.”

Boxer said she will continue to focus on the issue until a “satisfactory conclusion” is reached.

“After months of misleading statements by Shell Oil, I believe we now have proof that Shell had no credible economic reason to abandon this important facility,” Boxer said in a statement. “California consumers deserve relief from the economic squeeze they are feeling as a result of skyrocketing gasoline prices.”

Shell’s ability to keep the refinery operating through March 31 may depend on whether it can obtain modification of a consent decree over air-pollution emissions at the facility. Dresslar, the spokesman for the attorney general, said it appeared those issues would be resolved.

The Associated Press contributed to this report.

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