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Problems mount for sale of Bakersfield refinery, sources say

San Jose Mercury News: Problems mount for sale of Bakersfield refinery, sources say

“We’ll explore our options if we believe Shell is not acting in good faith.”: “Lockyer and the Federal Trade Commission have already launched investigations into whether a shutdown would violate antitrust laws.”

ANDREA ALMOND

Associated Press

Posted 16 Sept 04

LOS ANGELES – Shell Oil Co. wants to sell its Bakersfield refinery without the vital pipelines, onsite oil storage tanks and other equipment needed to run it, sources familiar with the situation say.

The company’s refusal to include key parts in a deal could dissuade buyers from purchasing the operation, which produces 2 percent of California’s gasoline and 6 percent of its diesel. That could result in permanent closure of one of only 13 California refineries that make the clean-air fuel the state requires.

The proposed restrictions could also be seen as a violation of an agreement Shell President Lynn Laverty Elsenhans made to state Attorney General Bill Lockyer to put forth a good faith effort to find a buyer for the refinery.

Shell announced last November it would close the 72-year-old refinery on Oct. 1.

After state officials complained that doing so would squeeze supplies and drive up fuel prices, Lockyer secured a commitment from Shell to postpone the shutdown until at least the end of the year – and possibly until next March – to allow time to negotiate a sale.

“Shell committed to the state of California that it would make a good faith effort to find a potential, qualified buyer and complete a sales transaction,” said Lockyer spokesman Tom Dresslar. “We’ll explore our options if we believe Shell is not acting in good faith.”

Lockyer and the Federal Trade Commission have already launched investigations into whether a shutdown would violate antitrust laws.

Meanwhile, several sources, speaking on condition of anonymity said the bidding deadline Shell set for potential buyers was to expire on Wednesday.

Shell spokesman Stan Mays declined to comment on the specific terms and conditions of bidding negotiations, but called the process “thorough and fair for all participants.”

“Several parties are bidding on the terms we proposed,” Mays added, though he declined to name any potential buyers.

The restrictions are not the first obstacles to a sale to arise since Shell announced its plans to close the Kern County operation, the smallest of its three California refineries.

At the time, company officials decided to exclude the refinery’s local crude contracts from any deal, making a sale less appealing to buyers who would be forced to scramble for new oil sources for the landlocked facility.

Consumer activist Jaime Court said refusing to include essential equipment in a sales deal would amount to a “bait and switch on the public.”

“It’s like trying to sell a house but claiming the roof and foundation don’t go with it,” said Court, president of the Santa Monica-based Foundation for Consumer and Taxpayer Rights.

The sprawling Bakersfield facility has changed hands multiple times since it opened in 1932 as the Mohawk Refinery. Shell and Chevron operated it as a joint venture for a time, but after Chevron merged with Texaco in 2001 antitrust regulators forced it to sell its share, making Shell the sole owner.

But throughout its history the refinery, which is actually three separate facilities connected by a maze of pipelines, has been sold with all its vital components intact, said sources close to the situation.

Shell officials said their decision to close the 400-employee refinery was prompted by a decline in oil production in the region and the aging facility’s inefficiency.

An industry consultant hired by the attorney general to study the refinery said the decision to close it “flies in the face of reason.”

The Dallas-based consulting firm concluded the facility can be run profitably and its sale could be structured in a way that is economically viable for both seller and buyer.

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