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Caltex Says Recession May Prompt Australia Refining ‘Shake-Out’

Bloomberg.com

By Angela Macdonald-Smith

April 23 (Bloomberg) — Caltex Australia Ltd., the nation’s biggest oil refiner, expects to benefit from anticipated rationalization in the industry as the recession forces multinationals to reassess their strategies.

The refiner has predicted local consolidation for a long time and the current slowdown “might start to drive some shake- out,” Chairwoman Elizabeth Bryan told reporters today after the company’s shareholder meeting in Sydney.

Australia has seven operating refineries after Exxon Mobil Corp. mothballed its second local plant near Adelaide in July 2003 because of losses and excess capacity.Royal Dutch Shell Plc’s Australian unit has said the company may decide against further major investment in refining.

“We expect to be here at the end of that rationalization as we are here at the beginning,” Bryan said. “We will play whatever role in that we think is appropriate and in the long- term interests of our shareholders.”

Caltex Australia, which today reported an 11 percent gain in first-quarter operating profit, advanced as much as 59 cents, or 6.3 percent, to A$9.98 in Sydney and was at A$9.92 at 1:16 p.m. local time. The move compared with an advance of as much as 1.5 percent in the exchange’s benchmark energy index.

Shell’s announcement in February that it’s considering putting its New Zealand refining and marketing business up for sale is a sign that some global oil majors “may be considering a different form of operation,” said Managing Director Des King.

New Chief

“I don’t know what opportunities would come our way, but certainly Caltex would pride ourselves on having a very strong balance sheet,” King said. “That means that if there were an opportunity to come along we could at least consider it.”

Caltex Australia, half-owned by Chevron Corp., operates two refineries in Australia, as do Shell and BP Plc, while Exxon has one. The company yesterday hired the head of Incitec Pivot Ltd. as its new chief executive officer, ending a nine-year practice of seconding a manager from Chevron.

The selection of Julian Segal, after King was recalled by Chevron, doesn’t reflect a looming strategy change, Bryan said.

“We were looking for an experienced CEO who had enough understanding of the types of industry we’re in to be able to run this company, that would underpin the growth and take Caltex forward over the next five, six years,” she said.

Caltex’s operating profit rose to A$97 million ($69 million) in the three months ended March 31, from A$87 million a year earlier, Bryan said earlier in an address to shareholders.

Get Carbon Right

Fuel production was 2.49 billion liters in the first quarter, up from 2.12 billion, while the margin on converting crude into refined products rose to 8.75 cents a liter from 7.18 cents.

A new diesel unit, costing A$320 million, is due to start up at the Lytton refinery near Brisbane in Queensland state at the end of this quarter, boosting the company’s capacity to produce Australian-grade diesel by more than 30 percent, King said.

Australia should focus on getting the design of its proposed carbon trading system right, rather than on the start date, King said. Caltex favors a delay in trading, planned for July 1, 2010, unless the system as currently proposed is changed, he said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at[email protected]

Last Updated: April 23, 2009 00:09 EDT

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