January 16, 2007
Carl Mortished: Commentary
A report by the James Baker Institute into BP’s US refinery operations will dissect a troubled business that is the Cinderella in the BP portfolio. The volatile and often unprofitable activity of manufacturing fuel has long struggled to secure the attention of BP’s management and it will soon disappear altogether as a business unit in the UK.
BP’s last British refinery is up for sale and the disposal of the Coryton unit in Essex will mean that BP’s UK service stations will be forced to source their fuel from rival companies or from BP operations overseas. The sale follows the disposal in 2004 of Grangemouth, BP’s Scottish refinery, which formed part of a package of refining and petrochemical assets sold to Inneos.
BP struggled for decades along with the other major oil companies to deliver consistent profits from a commodity business suffering from huge overcapacity and cutthroat competition. Only in the past two years has refining enjoyed a renaissance, a profits surge caused by buoyant demand and the gradual erosion of surplus capacity.
Colin Birch, an analyst at Purvin & Gertz, reckons BP has never had a refining focus: “They have had a target of reducing their refining cover. They would rather buy product from others.”
BP’s refining cover, the extent to which the volume of fuel sold is covered by fuel made in-house, is the lowest among the major oil companies.
According to figures from Merrill Lynch, ExxonMobil leads the pack, manufacturing 77 per cent of what it needs to supply its service stations and marketing operations. Total, the French oil major, is close behind with 70 per cent, while Royal Dutch Shell trails further, making in-house 57 per cent of its requirement.
BP is at the bottom of pile, with 48 per cent cover. Of every ten gallons of petrol sold by the British oil major, fewer than five come from a BP refinery. It argues it can source petrol from the cheapest supplier and sees no need to integrate, a strategy that fits a company that is traditionally led by oil explorers rather than marketers.
http://www.timesonline.co.uk/article/0,,5-2549035.html
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