CHEVRON TO DOWNSIZE U.S. REFINING, MARKETING

Chevron U.S.A. Products Co. plans a major restructuring of its business. Its new refining and marketing organization will focus resources in the U.S. West, Southwest, and South, where its business is strongest. It will sell its 177,000 b/d Port Arthur, Tex., and 173,000 b/d Philadelphia refineries and concentrate retail marketing investments east of the Rockies in fewer states. Port Arthur recently was downsized to its single train unit from a former capacity of 316,000 b/d. There are about
June 7, 1993
3 min read

"We must change with a changing business environment," said Dave Hoyer, Chevron U.S.A. Products president.

"The U.S. refining and marketing business has always been highly competitive and capital intensive. But today, increased regulation, mandated capital expenditures, and rising taxes impose enormous added risks and burdens on a system as large as ours.

"We also see very slow growth in demand.

"Our new core system will be smaller, more efficient, and able to operate at lower cost. We'll concentrate on areas where Chevron is most competitive.

"Assets being sold don't fit our long term corporate strategy to have a more focused operation. In the case of Philadelphia, we no longer market fuel products in the Northeast. And Port Arthur represents more refining capacity than we need in the Gulf Coast market."

The restructuring, recommended after an internal study, is designed to improve cash flow and return on capital employed and reduce future downstream capital investments, which are rising dramatically due to requirements of the Clean Air Act and other environmental regulations.

At the end of 5 years, Chevron's total capital employed in the U.S. downstream business will be almost $2 billion less than it would have been if the company had retained and continued to invest in the current system.

As a result of the restructuring, the company expects to take a second quarter, after tax charge to earnings of about $550 million.

The amount covers estimates of losses on the sale of fixed assets and related inventories, provisions for environmental site assessment, and employee severances.

The restructuring program includes plans to:

  • Retain the Port Arthur lubricants blending and packaging center. There will be no change in nationwide marketing of finished lubricants.

  • Retain the Port Arthur chemical units, which will continue to be owned and operated by Chevron Chemical Co.

  • Concentrate investment service stations in six Gulf Coast states: Florida, Georgia, Alabama, Mississippi, Louisiana, and Texas, "where competitive strengths and brand value are high." Chevron also will continue to provide products to a network of its branded jobbers in those states.

  • Sell investment service stations to its branded jobbers in other states east of the Rockies, including South Carolina, North Carolina, West Virginia, Virginia, Maryland, Ohio, and most of Kentucky and Tennessee, where branded jobbers will continue to market Chevron products.

  • Halt Chevron branded retail fuel sales in Arkansas, western Kentucky, and western Tennessee effective at the end of this year.

Chevron earlier disclosed a market withdrawal in portions of the mid-Atlantic area, which will continue as planned. Sales of branded lubricants are not affected by the decision to withdraw from branded retail fuel sales in those markets.

Chevron plans to try to find buyers for its facilities that will continue to employ the current work force. It will provide severance payments if jobs are ultimately eliminated.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.

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