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Sydney Morning Herald: Caltex in the market for rivals’ refineries

Matt O’Sullivan
July 24, 2007

AUSTRALIA’s largest oil refiner, Caltex, is interested in buying refineries from some of its arch rivals, which are reluctant to invest here because of competition from bigger Asian plants.

Royal Dutch Shell recently said its Australian business might decide against major investments at its Geelong plant in Victoria and Clyde refinery near Sydney because of competition from larger plants in Asia.

In 2003 Mobil mothballed its Port Stanvac oil refinery in South Australia, leaving the oil giant with only its Altona refinery in Melbourne, where it has already reduced capacity.

Yesterday, Caltex’s chief executive, Des King, said the company would be interested in acquiring other refinery assets in Australia, although it had yet to receive any approaches from rivals willing to sell. Caltex, which is half owned by the US’s second-biggest oil company, Chevron, operates two refineries in Sydney and Brisbane, producing about a third of this country’s fuel products.

“If something were to become available, we would be interested in knowing how that would fit into our portfolio. Certainly our expertise is running refineries,” Mr King said at a briefing in Sydney. “That would help us in terms of economies of scale.”

Unlike Caltex and BP, Mobil and Shell have refineries in the immediate region, which means they can rely more on importing fuel. About a quarter of fuel in Australia is imported, with the remainder refined at seven plants, mostly on the eastern seaboard.

“Most likely over the next decade to retain a viable refining industry in Australia some kind of restructuring might be required to compete against these large complexes offshore,” Mr King said.

“And people will just make different decisions … Mobil has already decided that they will shut Adelaide and import.”

ABN Amro’s energy analyst, Aiden Bradley, said Caltex would have to pay a premium for assets from its rivals. “It would go completely against the grain of any oil major … to give one of their competitors a leg-up,” he said yesterday. “It’s not going to be the sale of the century.”

Mr Bradley said the four refining majors – BP, Caltex, Mobil and Shell – would not need to pour large amounts of money into their plants for several years, but after that period he expected a reduction in the number of refining companies in Australia to as few as two.

While a resurgent Australian dollar has given motorists what Mr King described as a “10 per cent holiday” on prices at the bowser, the stronger currency has eaten away at Caltex’s US dollar-denominated refiner margins.

Last month Caltex’s share price suffered its biggest one-day fall in more than five years after the company forecast a smaller-than-predicted gain in first half-profit. Yesterday the stock rose 18c to $24.17 – still more than 13 per cent less than a record high of $28 in late June.

“Refined margins increased significantly in US dollar terms … but a big chunk of that was eroded because of the higher Aussie dollar – that is just the nature of our business,” Mr King said.

http://www.smh.com.au/news/business/caltex-in-the-market-for-rivals-refineries/2007/07/23/1185043031392.html

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