Refiners shifting to mergers, alliances to cope during downturn

Dec. 21, 1998
Key Inflection Points for Global Refining Industry [44,446 bytes] Global Economy Oil Demand [72,948 bytes] State Oil Company Participation in U.S. Refining [77,683 bytes] Major Downstream Mergers, Aquisitions [91,862 bytes] Efficiencies Expected [28,084 bytes] Regional Refining Margins [89,421 bytes]
Anne Rhodes
Associate Managing Editor-News

With the oil industry in the midst of what has turned out to be a pretty severe down cycle, refiners are seeking new ways to boost margins-and, what seems more important, shareholder value-to palatable levels.

The downstream sector has undergone a series of belt tightenings since the last industry-wide bust. Refiners have reengineered their businesses, and they are doing more with fewer employees. They are using technology to increase efficiency, optimize operations, and squeeze more products out of the bottom of the barrel.

But these efforts have not been enough to protect refiners from the economic forces that are reshaping the petroleum industry.

Demand for refined products is being restrained by a series of economic crises that began in Asia and spread around the world. And, as a result of this economic downturn (and other factors), downward pressure has remained on oil prices for most of 1998.

Although low oil prices have historically favored the refining business, this latest go-round has not had the usual benefits for processors. Margins are better than they were in 1995-96, but they are still not good enough to give refiners adequate returns on capital, at least not by Wall Street's standards.

Refining is a low-margin commodity business, and it is not likely to become anything else while it remains a viable industry. So refiners are increasingly looking to each other, and upstream to oil producers, to develop mutually beneficial coping mechanisms in a depressed industry.

The past few years have seen a number of key trends develop in the downstream sector (see time line, p. 22).

Several forward-thinking independent refiners have achieved phenomenal growth. Some have done so through acquisitions of individual refineries. Others have mushroomed their businesses through a series of mergers and alliances with other firms.

A number of U.S. downstream companies-majors and independents alike-have formed strategic alliances with producer countries such as Saudi Arabia, Venezuela, and Mexico. In these deals, the U.S. firms have signed long-term crude supply agreements in exchange for the capital needed for plant upgrades (see figure, p. 23). In some cases, the state oil firms have taken an equity stake in the U.S. refineries.

In the past 2 years, another key trend has emerged among refiner-marketers, as it has throughout the oil industry: escalating merger and acquisition (M&A) activity. We are now seeing major integrated oil companies joining forces, independents converging in increasing numbers, and former competitors uniting their operations in key regions to better compete.

There is a major restructuring afoot in the refining sector, and it is expected to continue at least through 1999. When it is complete, the industry landscape is sure to look quite different than it did in 1996, before the current trends took hold.

But what will have happened in those 3 years?

How we got here

The refining sector is increasingly turning to alliances, acquisitions, and mergers to cope with the current down cycle. But how did we reach the point of expecting each week another merger announcement or strategic alliance?

The Asian financial crisis, and its contagion, are important factors.

The Asian financial crisis and the resulting downturn in demand are primarily responsible for the glut of crude oil, and consequently the low oil price climate, says Robert Hermes, president of Purvin & Gertz Inc. (see figure, p. 23).

Texaco Inc. Chairman and CEO Peter Bijur agrees: "Over the past year, the oil industry has been hit hard by the worst economic crisis in a half-century," he said at a gathering of security analysts in New York early this month. "Our industry was certainly not alone in greatly underestimating the severity of Asian economic problems.

"Indeed, few foresaw the extent to which Asia's difficulties would spread to other regions-primarily Latin America and Russia-and how severely western financial markets would be impacted. This rapid and unexpected deterioration in world economic conditions has resulted in the weakest oil market in a dozen years," said Bijur.

But, while it is easy to point to the economic slide that started in Asia as the impetus for the M&A zeal the industry is now experiencing, a quick glimpse backward reveals that the merger trend was picking up steam well before Asia's economies began to go south in second half 1997.

Acquisitions, alliances

"The M&A trend started before oil prices went south," said Hermes. "In fact, it started when oil prices were very high." Crude prices were averaging about $20/bbl when British Petroleum Co. plc and Mobil Corp. announced their European refining joint venture in March 1996.

Seven major downstream deals were announced during January 1996-May 1997, including the BP-Mobil deal (see table, p. 24). This means that as many downstream deals had been put together before the Asian crisis hit as have been made since.

What was driving those early deals? Inadequate financial results. Calvin Cobb, managing director of Ernst & Young/Wright Killen, de- scribed the events that led the industry to that point.

Since the Arab oil embargo in 1973, said Cobb, refining companies have been working on becoming more efficient. And this mandate increased after the Iran-Iraq war kept a prop under oil prices for a number of years. In the last 5 years, he says, companies have been working "extremely hard" on improving efficiency.

"Recent results (show) they're still not returning adequate shareholder value as an industry. Economicellipse analysis shows that they're actually destroying shareholder value rather than holding it constant or growing it," he said.

Cobb concludes that this led refiners to the need to do something radically different in order to improve results. They needed to change their structure by forming bigger companies that are "even more competitive and more profitable," he said.

Cobb pointed out, "These are very capable companies. They have all the technology and all the resources."

But, given a market of "low to no demand growth," he says, these advantages aren't enough.

Preceding the current M&A round were a number of single-refinery acquisitions.

In 1993, Tosco Corp. acquired BP's Ferndale, Wash., refinery and Exxon Corp.'s Bayway refinery at Linden, N.J. In 1994, Sun Co. Inc. acquired Chevron U.S.A. Products Co.'s Philadelphia refinery, and in 1995, Clark Oil & Refining Corp. purchased Chevron's Port Arthur, Tex., refinery.

Tosco's 1993 moves were followed by its purchase of Unocal Corp.'s downstream assets in 1996, when that firm exited refining and marketing altogether. Since 1992, Tosco has accomplished the impressive feat of growing from a single-refinery company to the U.S.'s fifth largest refiner, with five refineries and more than 900,000 b/d of capacity (see table, p. 46).

Cobb says this marked the beginning of the formation of "large independents," which he defines as those having 500,000-1,000,000 b/d of refining capacity.

Ultramar Inc. and Diamond Shamrock Corp. were next to form a large independent-Ultramar Diamond Shamrock Corp. The combine later acquired Total's U.S. refining assets, then earlier this year agreed to form a joint venture with Phillips Petroleum Co.'s refining and marketing business, to be called Diamond 66 (OGJ, Oct. 19, 1998, p. 39). If approved by regulators, Diamond 66 will have 10 refineries and 1,040,000 b/d of capacity.

Following the early moves by independents, the bigger, integrated companies started to form strategic alliances. A joint venture between BP and Mobil in Europe was the first. Then Marathon Oil Co. and Ashland Petroleum Co. formed a refining JV, Marathon Ashland Petroleum LLC.

"Downstream companies were mature," said Cobb, "and they needed to do something different."

After the fall in oil prices, the consolidation trend moved upstream and grew to include such megamergers as BP-Amoco Corp. and Exxon Corp.-Mobil Corp. (OGJ, Aug. 17, 1998, p. 34; and Dec. 7, 1998, p. 37).

Clearly, the trend is prevalent in the U.S. and Europe, but it also appears to be moving to Asia-most notably Japan, where Mitsubishi Oil Co. and Nippon Oil Co. recently announced a merger (OGJ, Nov. 2, 1998, p. 42).

Arguably, says Hermes, low oil prices were one of the factors in the escalation of this trend, although not a key factor. The main factors, he says, were the dual goals of improving return on capital employed and increasing share prices.


Size seems to be the key driving force behind many of the recent M&A deals.

"To compete in today's environment, some companies are going beyond alliances and consolidating their entire operations," said Wayne Allen, chairman and CEO of Phillips Petroleum Co., at a conference in London last month. "They see size as a way to spread costs and potentially attract new investors, especially if consolidation brings with it higher earnings."

Following the Exxon-Mobil announcement, Texaco's Bijur told a gathering of security analysts in New York, "Obviously, we are in the midst of a historic shift in the structure of this industry toward greater consolidation. Similar to the previous period in the early to mid-1980s, the industry is reacting to lower earnings and poor returns after a period of significant-very significant-price deterioration.

"What is different this time is the scale and duration of this price deterioration, and that has led to a significant difference in the size and scale of the consolidations going on within the industry.

"In years past, that consolidation has occurred among the smaller independent companies that ran out of cash to do their business. Today, it's obviously happening on a much broader scale.

"One reason is to high-grade opportunities, and another reason is to reduce costs and achieve better capital efficiency. A lot of the projects that this industry is involved with are extremely capital-intensive, and they require the scale and reach that these consolidations are providing."

Allen said, "All of us covet the higher earnings multiples of the largest players in our industry. I personally do not believe that bigger is necessarily better.

"For me, financial performance is what defines success," he said. "I look for a company that can achieve solid, year-over-year production growth; has competitive per-unit costs; includes a diverse asset base throughout the entire value chain to minimize earnings swings; has leading-edge technology, modern business practices, and good management; and has the financial strength to take on megaprojects.

"Medium and relatively large companies can meet these criteria," said Allen. "But, even so, there is an argument that a large company with a diverse asset base, solid management, and financial strength will deliver consistently higher returns to the investor than a smaller competitor. The $64,000 question is, How large does a company have to be to buffer its earnings from the swings of a volatile market?

"Shell, Exxon, and now BP-Amoco each have market capitalization of more than $125 billion. If you look at the next tier of companies, there are only about seven with market capitalization larger than $20 billion. Think how much additional consolidation would have to take place for them to approach the $125 billion level. And is it necessary for them to be that large?" he asked.

"I think you would have a difficult time convincing the middle tier of companies that they are too small to compete for almost any opportunity, or that size alone will assure them success," said Allen.

The benefits of merging

Forming an alliance or merger can bring a company any number of benefits, most arising from achieving econ- omies of scale and eliminating redundancies.

"(These companies) are targeting synergisms and cost reductions in the neighborhood of 60-75¢/bbl improvement," said Cobb. "Compared with average refining margins, that's very significant." Marathon Ashland Petroleum LLC (MAP), for example, expects to achieve efficiencies of $80 million this year and $180 million next year. And it calls these efficiencies "repeatable."

In fact, the firm expects to exceed its original estimate of $200 million in annual efficiencies by its fourth year of operation. In the long term, most of the benefits derived from its merger will result from personnel reductions and procurement savings (see chart, p. 25).

Among the larger mergers, BP-Amoco is hoping to save $2 billion/ year and Exxon-Mobil $2.8 billion/ year.

Ultramar Diamond Shamrock said early this month that it expects restructuring and optimization to bring an additional $50 million pre-tax to its bottom line in fourth quarter 1998 vs. the same quarter last year. However, if current industry conditions continue, said UDS, it expects fourth quarter earnings from operations to be just above breakeven.

"The further slide in crude oil prices in a contango market (where prompt prices are lower than next-month prices) continues to motivate refiners to run at near-full rates and build on finished product inventories, which are already above 4-year highs," said UDS Chief Operating Officer and CEO-elect Jean Gaulin. "With finished products in oversupply and some heating oil containment problems, gasoline and distillate prices are eroding faster than crude oil prices, and margins are weakening."

If the current weakness in margins persists through yearend, said UDS, it expects its fourth quarter composite crack spread to be as much as 80¢/bbl below last year's fourth quarter average of $3.75/bbl. Meanwhile, the 40-day lag between the pricing and delivery of 40% of the company's crude oil purchases is expected to effectively add $1.60/bbl to the cost of oil during the fourth quarter, compared with just $0.69/bbl in fourth quarter 1997.

"With seven refineries running about 600,000 b/d, these and other market-driven changes in retail and petrochemical realizations are expected to reduce earnings from operations in the current quarter to a near breakeven level."

So, even after all its maneuvering and growth, UDS is still facing the prospect of a breakeven quarter at best. This could be construed as evidence that targeting growth without strategic capacity rationalization is not sufficient to meet the financial demands placed on publicly traded companies today. Or, it could be considered only an indication that refining margins are in the gutter and would have been worse for any of the individual participants in the UDS merger.

More likely, both assertions are true.


In any case, UDS's comments are evidence that this fall in oil prices has not helped refiners to the degree that crude oil price declines typically do.

"The (high) level of capacity in the industry has prevented refiners from gaining too much," said Ken Miller, a senior principal at Purvin & Gertz. The only time margins improve substantially as a result of low oil prices, he says, is when refineries are running at full capacity. "So we really haven't had too much of an improvement."

Gasoline demand growth is still healthy, at more than 2% in the U.S. this year. And refining capacity here is still high enough that refiners are tending to overproduce in the off-season, says Miller.

U.S. margins are terrible, he says because refineries are overrunning their requirements. This has driven margins down to really low levels. This is complicated by an overhang of stocks in all light products now in the U.S.

The overcapacity problem-and resultant low margins-are prevalent in the world's three largest refining regions: the U.S., Western Europe, and Asia (see chart, p. 25).

"Europe, the U.S., and Japan all have similarities," said Cobb. These are: mature markets, low to no growth in products demand, too many refineries, and too many competitors, he says.

The overcapacity problem is most pronounced in Europe, where there is also an excess of gasoline production capacity.

In Asia, where margins are weakest, a massive refining capacity buildup preceded the economic downturn. So the contraction in demand is being doubly felt there, especially given the fact that new refineries are still coming on stream (see photo, p. 27).

Meanwhile, India's biggest refiner, Indian Oil Corp. (IOC), is touting plans to double its refining capacity by 2004-05 (see story, p. 28). This leaves one wondering about the nature of IOC's business goals, or at least about whether its planners are reading the trade press.

In the U.S., the same could be said about TransAmerican Refining Corp. and its revitalized Norco, La., refinery, which is now processing crude following an almost 6-year search for funding. Supply and demand for refined products were in pretty good balance in the U.S. before that 200,000 b/d refinery added its products to the spot market.

Looking forward, the M&A trend provides the potential for a limited remedy for the high-capacity, low-margin refining business, if the merging firms choose to rationalize some of their capacity in regions where they have significant overlap with their partners.

In the U.S., this kind of rationalization will be necessary to fend off "capacity creep," the gradual inching up of capacity despite stability in the number of refineries.

In Europe, refiners appear to be a little more serious about capacity rationalization. Shell U.K. Ltd. has decided to close its Shell Haven refinery in the U.K. and its Sola refinery in Norway, and to reduce operations at its Berre L'Etang, France, plant (OGJ, June 22, 1998, p. 40; and Nov. 30, 1998, Newsletter).

Since making this announcement, Shell's planned downstream venture with Texaco in Europe has been called off (OGJ, Dec. 7, 1998, p. 41). But that seems to have merely motivated Shell to go all-out in an effort to streamline its operations (see story, p. 31). The Total-Petrofina SA merger would also offer the opportunity for its participants to reduce capacities, but no such plans have been announced yet. And the removal of Shell's two smallish refineries from the system will not be adequate to bring European margins back to acceptable levels.

In Japan, the Mitsubishi-Nippon merger offers a likely chance of rationalization (OGJ, Nov. 9, 1998, Newsletter). And rationalization is sorely needed in that country (see story, p. 26).

Gale Richards, an analyst for Sterling Consulting Group, Houston, says the capacity glut in Asia is essentially a permanent situation: "Overcapacity is here to stay, even though a lot of the projects have been delayed or canceled."

The region is in no danger of finding itself short on refining capacity when the economy bounces back, she says. "There is always an incredible amount of capacity creep. It happens in the U.S. every year, too." And new refineries continue to be built, she says, "because people just can't resist building."

In addition, said Richards, "People are starting to see the light at the end of the tunnel, as far as the (Asian) crisis is concerned."

Plus, she says, many companies use refining as an entr?e into exploration and production in Asian countries, because those nations tend to be more open toward private investment downstream.

"It's not like refining is ever going to be a money-making industry," says Richards. "Oil is where you make your money." At least it is when times are good.

More to come

Virtually everyone observing the oil industry expects the current merger trend to continue for a while. Some of this will be driven by upcoming tighter fuel specifications, especially in Europe and the U.S., say Hermes and Miller, because these regulations create the need for capital upgrades.

These trends spread, say the Purvin & Gertz analysts. If one company sees another gaining an advantage, they will join in. Richards, among others, sees the prospect of further consolidation in Asian refining as all but certain.

"The national oil companies are crossing borders all the time. I would think that the (ones) that are privatizing are going to do some big things. They're going to be merging and consolidating. They're trying really hard to be like the big guys."

Bijur agrees: "We also see the emergence of new competitors as formerly state-owned companies look outside of their national borders for opportunities. This has to be taken into account in the competitive equation, as we all look out toward the future."

Japan's refining-marketing sector is a sure bet for further consolidation. Downstream deregulation has exposed a lot of inefficiencies in the system there, says Richards, making it a prime candidate for such maneuvers.

The situation is similar in Australia, she says, where two such deals are already planned (see table, p. 24, and OGJ, Dec. 14, 1998, p. 35).

There may be a few deals made in Singapore and Thailand, she says, but not to the same degree.

Hermes agrees that Asia is ripe ground for M&A activity. In Japan, he says, the need to restructure and cut costs is "much more pronounced" than in the U.S. Overcapacity is greater, and distribution is much less efficient.

"I think Europe will need some more as well."

"Eventually, the M&A trend will run its course naturally," added Hermes, as there are only so many combinations that offer potentially substantial synergy gains.

"If two companies have refining operations in the same general region, they can optimize their production and distribution systems. If they're disjointed, however, you only have overhead savings to gain."

But whether recent and future M&A deals will result in any additional capacity rationalization remains to be seen. And, if they don't, the companies involved likely won't be able to achieve quite the desired level of improvements in their bottom lines. "Mergers don't usually result in shutdowns," said Miller. They more often result in refineries being sold off. "(Those refineries) tend to move to independents," he said.

This will not help.

Tim Martin, a consultant in Saudi Aramco's corporate planning department, is optimistic about the prospects for some rationalization as a result of the mergers that are forming.

"The 'merged facilities' will be rationalized in terms of a value-added concept, with the emphasis on competitiveness, return on capital employed, and return to the owners (shareholders and/or government)," said Martin.

In light of recent industry activity-or lack thereof-Martin's statement seems more an expression of an ideal than a prediction of an outcome.

What can be inferred from Martin's comment, however, is that continuing pressure from Wall Street is a key factor that will ensure that the M&A and alliance trends will extend further into the future.

During the past 5 years, said Phillips's Allen, the petroleum industry's return on equity has trailed the S&P 500 by more than 8%/year. "This is a serious issue for publicly traded companies.

"Our industry is capital-intensive and requires extraordinary amounts of funding for major projects and ongoing activities," said Allen. "This funding will enable us to develop new reserves of oil and natural gas, ever-cleaner fuels, and the petrochemicals that will contribute to better living conditions for all.

"To attract investment capital, we must deliver competitive shareholder returns. The question is, How do we deliver competitive returns in an unstable market and in a prolonged environment of low prices?

"In the production process of pure commodity products," said Allen, "the choices are few. We can increase volumes and cut costs while waiting for margins to improve. And, despite lower prices, most of us are continuing a stable exploration program. In addition, we are taking on more improved oil recovery projects, buying reserves, and forming more major alliances.

"Through alliances, we can reduce costs and risks by joining partners across the entire integration chain, including new business ventures."

The coming year

Despite a few contrarian views, the consensus is that refiners can expect a continuation of the status quo in 1999.

The global picture for refining remains weak because of lackluster demand, says Miller: "It's an industry-wide problem right now that will take a few years to work its way through."

Ernst & Young/Wright Killen forecasts that refining margins will stay within a historical range, barring unforeseen and dramatic changes in factors such as weather, products demand, crude prices, and the nature of refining capacity (in terms of conversion capacity or complexity).

"Margins on the Gulf Coast have been around $1/bbl for 10 years," said Cobb, "save for 2 years when they were about $2. Fundamentally, we don't see any big trends that will move margins up or down."

"We still have a lot of capacity coming up that will keep margins low," added Miller. "This capacity will be the result of the usual unit expansions and debottleneckings. But there is also a significant increase in conversion capacity expected, primarily as a result of supply agreements that U.S. refiners have struck with the national oil companies of Venezuela and Mexico (see figure, p. 25)."

These agreements involve, in most cases, an influx of capital from the state firm in exchange for the securing of a long-term crude supply agreement (OGJ, Oct. 19, 1998, p. 67). Recently, such deals have been made between:

  • Petroleos de Venezuela SA (Pdvsa) and Conoco Inc. for Conoco's Lake Charles, La., refinery.
  • Pdvsa and Mobil for Mobil's Chalmette, La., refinery.
  • Pdvsa and Phillips for Phillips's Sweeny, Tex., refinery.
  • Pdvsa and Exxon for Exxon's Baytown, Tex., refinery or its Baton Rouge plant.
  • Pdvsa and Coastal Corp. for Coastal's Corpus Christi, Tex., refinery.

Although Miller believes the continuing excess in refining capacity will hinder any recovery in margins in 1999, in the longer term this extra capacity will be needed to meet demand growth, he added.

"The nature of commodity markets," says Hermes, "is such that small amounts of overproduction are enough to sink the market substantially. In crude oil output, overproduction may be 3% of demand (but)ellipsea small amount of excess drives prices down considerably.

"The unfortunate fact," he said, "is that there is not too much refiners can do to control it. It is largely driven by the markets."

Recovery ahead?

Bijur provides a dissenting view from most of the voices heard recently, due solely to his optimism.

"We expect to see enough of a recovery to provide an average (oil price) of $15 for 1999," said Bijur. "We expect a small pick-up in world economic growth next year, and oil demand should grow by about 1 million b/d in 1999. Yet, even if OPEC and the handful of other 'cooperating' nations maintain production discipline, it is not clear that the market can sustain prices significantly above $15/bbl.

"Major constraints on prices include the stock overhang continuing into 1999 and anticipated further growth in non-OPEC liquids supplies. In addition, U.N.-approved expenditures on Baghdad's oil facilities are likely to bring some additional increase in Iraq's ability to export. However, we do not expect sanctions to be removed anytime soon."

Bijur tempered his own optimism with a healthy dose of reality, however.

"We are not assuming a substantially better environment for price next year," said Bijur. "However, we do see better market conditions coming by the year 2000.

"We view the current oil market weakness as very much a cyclical phenomenon. In other words, we do not believe that prices have shifted permanently downward to a new level and a new trading range.

"We anticipate a broad-based economic recovery to develop in the year 2000. The strengthening in world economies will generate a substantial acceleration in oil demand.

"With GDP expected to rise by 3% worldwide in 2000, oil consumption should grow by perhaps 1.6 million b/d. Although this is well below the high-growth years of 1996 and 1997, it is still more than twice this year's demand increase of 600,000 b/d.

"We expect key OPEC nations to continue their production restraint. At the same time, we expect a slowing in increases from other sources-a lagged response to today's price-induced capex cuts.

"With demand recovering and supply increases expected to be limited, somewhat stronger pricing conditions should prevail in 2000. Consequently, our plans in 2000 include a WTI price of $17.00-17.50/bbl-the lower limit of the historical $17-21/bbl price range."

Changing landscape

Bijur says he didn't expect the profound changes that have taken place in the oil industry recently.

"There is absolutely no doubt that the landscape of the international petroleum business is changing," said Bijur. "I really didn't think it was going to happenellipsebecause I really didn't think that crude prices were going to stay at the level that they are at today for as long as they stayed there.

"But when this kind of thing happens-and it is cyclical-you are going to get a change in the way the industry is structured and the way we do business."

But, despite the grave changes that have occurred already, there is certainly room for further consolidation in the downstream industry.

The industry is so fragmented, says Hermes, that there are still plenty of competitors left. But the concentration does help, he says: "You only have to look at airline industry to see that it leads to better profitability."

"The new millennium will provide opportunities and challenges for the global refining industry," predicted Martin. "There will be more project partnering from capital, operating, technology, finance, and execution perspectives. Also, there will be continuing environmental pressure, and alternate-fuel vehicles will be more and more competitive.

"The number of refineries will remain relatively static, as only the name may vary in some cases.

"The short-term business outlook, however, will be very trying," he predicted.

Martin warned, "While rationalization and consolidation allow the newly formed 'mega' oil companies to realize economies of scale, efficiencies, and lower costs, (these come) at a price, in terms of surplus workers and less competition."

His comment reminds one of the observation that the petroleum industry often forgets the lessons of the past almost as soon as they are learned.

Before the current M&A frenzy, there was a cost-cutting agenda. Companies reengineered their operations and trimmed corners wherever possible in an effort to keep returns as constant as possible despite less-than-optimum market forces.

But when the market rose again, as markets do, operators found themselves too short of experienced staff to take full advantage of the opportunities available to them.

Only the next industry up-cycle will reveal whether the personnel cuts associated with today's mergers are in excess of what is required to safely weather the current downturn.

OGJ Associate Managing Editor-News Anne Rhodes

The downstream sector has undergone a series of belt tightenings since the last industry-wide bust. Refiners have reengineered their businesses, and they are doing more with fewer employees. They are using technology to increase efficiency, optimize operations, and squeeze more products out of the bottom of the barrel. But these efforts have not been enough to protect refiners from the economic forces that are reshaping the petroleum industry...Refining is a low-margin commodity business, and it is not likely to become anything else while it remains a viable industry. So refiners are increasingly looking to each other, and upstream to oil producers, to develop mutually beneficial coping mechanisms in a depressed industry.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.