Independent refiner Premcor Inc. said it will cut its nonunion staff by about 20% and will record a $10 million restructuring charge in the third quarter related to the reduction. The Old Greenwhich, Conn.-based company said the cuts should reduce costs by $15 million/year.
In other recent company news:
San Jose, Calif.-based independent power producer Calpine Corp. has inked a deal with NAL Resources on behalf of NAL Oil & Gas Trust, Calgary, and another institutional investor for the sale of certain Canadian oil and gas properties, deemed "nonstrategic," for about $125 million (Can.).
Algerian state oil company Sonatrach is taking its first foothold in Europe through a three-pronged agreement with Spain's Cepsa in which France's TotalFinaElf SA has a 44% stake.
India's state-owned Oil & Natural Gas Corp. (ONGC) has increased its equity stake in Cairn Energy PLC's Cambay offshore oil and natural gas discovery.
Holly Corp., Dallas, along with its subsidiary Navajo Refining Co. LP of Artesia, NM, filed suit last month in state district court in Carlsbad, NM, in its long-running court battle with Dallas-based Longhorn Partners Pipeline LP (LPP), LPP's principal partners, and the corporations and investment fund that control LPP.
Premcor restructuring
Half of Premcor's expected savings from its restructuring plan would be realized at the operating expense level, the company said. The remainder will be reflected in its refining and corporate-level general and administrative expenses, which are expected to be reduced to $8 million/quarter by the end of first quarter 2003.
Premcor said it will trim its employee base at its Port Arthur, Tex., and Lima, Ohio, refineries. These cuts will take place early next month, the company said. Additional workers will be pared from the company's administrative office in St. Louis. These worker reductions, which are in addition to those announced in April, will take place by the end of first quarter 2003.
"The US refining market remains under significant pressure after 12 months of difficult conditions," said Premcor Chairman, Pres., and CEO Thomas D. O'Malley. "The reduction in workforceUis necessary for the long-term financial viability of Premcor," he added.
The company also revealed that it has reduced by 20¢/bbl its crude acquisition costs at its Lima refinery. "Given these and other ongoing improvements to Premcor's operations," O'Malley said, "we are confident that the company can be profitable in 2003 even if refining margins, crude prices, and light-heavy crude differentials remain at the levels we have seen so far this year."
Earlier this month, Premcor confirmed that it will close its 70,000 b/d refinery at Hartford, Ill., in October (OGJ Online, Sept. 16, 2002). And earlier this year, the US Department of Justice, Environmental Protection Agency, and the state of Illinois announced a settlement requiring Premcor Refining Group Inc.—a Premcor unit formerly known as Clark Refining & Marketing Inc.—to pay $6.25 million in environmental fines to resolve claims that its 80,000 b/d Blue Island, Ill., refinery (now closed) violated five federal statutes (OGJ Online, Apr. 1, 2002).
Calpine divestiture
Calpine's Canadian assets, which lie about 25 miles west of Red Deer in central Alberta, hold 60 bcfe of net proved reserves, 70% of which are oil and liquids, Calpine said. Current net production is 19 MMcfed.
The assets include 18,845 developed acres, 9,920 undeveloped acres, and more than 225 producing wells.
Under the agreement's terms, 42% of the acquisition is subject to rights of first refusal, which expired Sept. 28. The balance of the transaction closed Aug. 30.
Calpine will "continue to evaluate opportunities for the sale of other nonstrategic assets," said Bob Kelly, Calpine chief financial officer and executive vice-president.
Sonatrach's European move
Sonatrach has agreed to acquire a 30% interest in Cepsa's affiliate in charge of gas marketing, which is a 50:50 joint venture of Cepsa and TotalFinaElf. The two European firms' shares in the JV will be reduced to 35% each.
Sonatrach also will take a 30% stake in another Cepsa affiliate, one in charge of electric power cogeneration. Finally, Cepsa and Sonatrach will set up a trading company for crude oil, called Sonacep. Terms were not disclosed.
In addition, Sonatrach is involved in the Medgas gas pipeline project—a subsea pipeline from Algeria to Almeria, Spain—in which Cepsa, Spain's Endesa SA, BP PLC, ENI SPA, Gaz de France, and TotalFinaElf also are participating. The consortium that will be charged with implementing the pipeline project is scheduled to be set up in early 2003.
ONGC's stake hike
ONGC increased its equity stake in Cairn's Cambay block to 40% from 10%.
Block CB/OS-2 contains Gauri oil and gas field off Gujarat state. Cairn earlier held a 75% exploration interest and is the operator for the joint venture, in which India's Tata Group is the third partner with a 15% stake.
ONGC had retained the right to increase its stake to 40% in the event of a commercial discovery on the block. With Gauri gas field being declared commercial in July, ONGC has exercised that option. Cairn has made five hydrocarbon discoveries on the block since 2000: Lakshmi (gas), Lakshmi (oil), Gauri (gas and oil), Ambe (gas and oil), and Parvati (oil).
A few months ago, ONGC had exercised a similar right in the ring-fenced Lakshmi development area. Following that move, Cairn now holds 50% in Lakshmi, ONGC 40%, and Tata 10%.
Sources revealed that some of the Gauri reservoirs are in communication with the adjacent producing Hazira field, which is operated by Calgary-based Niko Resources Ltd.
Lakshmi development is under way, with first gas expected in October.
Two gas sales contracts have been signed with local utilities Gujarat Powergen Energy Corp. and Gujarat Gas Co. Ltd. for the sale of gas from Lakshmi into the industrialized Gujarat market. The Lakshmi facilities initially will have a maximum gas production and processing capacity of 150 MMcfd.
Current reserve estimates for Gauri gas are 60-200 bcf. Development plan options, anticipating an initial 40 MMcfd, are under consideration by the joint venture. Oil has also been discovered beneath the gas reservoirs at Gauri, for which further appraisal will be required to evaluate the potential. This is expected to coincide with the gas development drilling program, planned to get under way next year.
Holly-Longhorn filing
In their suit, Holly and Navajo Refining allege tortious interference with existing business relations, malicious abuse of process, unfair competition, prima facie tort, and conspiracy, and they seek actual and punitive damages.
Among the defendants named in the suit are subsidiaries of ExxonMobil Corp., BP PLC, and Tulsa-based Williams Cos. Inc., along with Beacon Group Energy Investment Fund.
The latest suit stems from a pending lawsuit LPP filed in El Paso against Holly and Navajo Refining.
In March 1999, LPP agreed to perform an environmental assessment of its 700 mile refined motor fuel products pipeline from the Texas Gulf Coast to El Paso in settlement of a civil suit in US District Court in Austin (OGJ, Apr. 12, 1999, p. 35).
Plaintiffs in that suit—including the Lower Colorado River Authority, the city of Austin, and a group of Kimble County, Tex., ranchers—challenged the environmental safety of an LPP pipeline route across the Edwards aquifer that furnishes water for many central Texas cities and towns (OGJ, Aug. 31, 1998, p. 15). Defendants in that case included LPP, the US Department of the Army, US Environmental Protection Agency, and US Department of Transportation.
In the course of that lawsuit, it was discovered that Navajo Refining had fronted funding for the ranchers' suit against LPP. The pipeline firm subsequently filed its own countersuit against Navajo, Holly, and Austin law firm George, Donaldson & Ford LLP (OGJ, Sept. 7, 1998, p. 42).