PETRO-CANADA TO CUT REFINING CAPACITY

Responding to sliding product sales, state owned Petro-Canada, Calgary, will mothball one refinery and reduce operations at another.

The moves will reduce refining capacity by more than 65,000 b/d.

Petro-Canada also will close or sell more than 1,000 of its 3,200 retail outlets and 340 wholesale outlets during the next 2-3 years.

The changes will result in a $637 million (Canadian) writedown of assets, or an after tax charge of $369 million.

Petro-Canada Chairman Bill Hopper said downstream capacity of the Canadian industry exceeds demand, and the changes will size the company's business to meet current and future demand.

Its refined products sales slipped 2.7% to about 269,000 b/d in 1990, dropped another 7% in 1991, and are expected to remain flat even after an economic recession ends.

The company trimmed spending last year and will do so again this year.

Several other Canadian companies are considering or planning downstream changes.

The federal Petroleum Monitoring Agency last month reported the Canadian industry lost $245 million in the first 9 months of 1991 (OGJ, Jan. 13, p. 20).

PETRO-CANADA PLANTS

Scheduled for mothballing during the next 6-18 months are process units at Petro-Canada's 25,500 b/d Port Moody, B.C., refinery. The site will serve only as a products terminal for shipments from the company's 115,500 b/d Edmonton, Alta., refinery.

Fuel products units will be taken out of service at Petro-Canada's 41,500 b/d Mississauga, Ont., refinery. The plant will be reconfigured to asphalt and lubricants manufacturing and packaging. Petro-Canada is pursuing joint venture options for the lubricants operation.

The fourth quarter 1991 writedown includes an after tax provision of about $120 million for plant closure, mothballing, and cleanup.

In addition, Petro-Canada is seeking a buyer or joint venture partner for its 87,400 b/d Montreal refinery. The joint venture could include its marketing in eastern Canada.

Petro-Canada's refining and marketing business lost $106 million in the first 9 months of last year. After returning to profitability in the third quarter, the division is expected to record a small operating loss, before the writedown, in fourth quarter 1991.

Products division Pres. Jim Pantelidis said, "In light of recent market developments, the downstream business is not sufficiently profitable the way it is constituted today. With global competition and the increasing environmental costs of running refineries, we cannot profitably operate all our assets."

Petro-Canada will reduce spending this year to $510 million, including $190 million net of government grants for its share of the Hibernia oil field development program off Newfoundland. The company spent about $650 million in 1991, down from initial plans for $860 million.

It expects 1991 cash flow to amount to less than $300 million, half of original plan, when all returns are in for the year.

It also expects $140 million in proceeds from asset sales this year, along with savings of $100 million in operating and overheads costs as a result of improved efficiency.

OTHER COMPANIES

Among other Canadian companies, Shell Canada Ltd. reported a profit of $12 million on operations in 1991, compared with $317 million in 1990. The 1991 profit was before a $138 million writedown on a coal mine.

The company had a loss of $62 million in its oil products division in 1991, compared with a profit of $153 million in 1990 in that division. The resources division had a 1991 profit of $130 million, compared with $153 million in 1990.

Shell is reorganizing its retail operations but has no plans to close refineries. Shell revealed plans earlier this year to close or sell as many as 2,000 of its outlets and build 1,506 new ones.

Canadian Turbo Inc., Calgary, another company with refining and retailing operations, retained financial advisers to study "possible strategic transactions." Turbo lost $19 million in the first 9 months of 1991, compared with a $9.5 million profit for the same period in 1990.

Meanwhile, a study by a national investment firm of the Canadian downstream sector said a refining glut of 108,000 b/d likely will require closure of several refineries operated by Petro-Canada and Exxon Corp.'s Imperial Oil Inc.

The report by ScotiaMcLeod Inc. named Imperial's 45,000 b/d Vancouver, B.C., and 80,000 b/d Dartmouth, Nova Scotia, refineries and Petro-Canada's Port Moody plant.

The study, which has not yet been publicly released, said the Canadian market is not expected to absorb a surplus of product until 1997-98. It said refinery closures are one of several steps that should be taken in an overall restructuring plan.

Imperial said it is involved in planning a major restructuring of operations and did not rule out refinery closures. Details are to be disclosed in a few weeks.

Industry analysts say Imperial cutbacks could be on the same scale as Petro-Canada's. Imperial operates about 4,200 retail outlets. The company had an operating loss of $36 million in 1991.