David Knott
London
[email protected]
Elf Oil U.K. Ltd. and Gulf Oil (Great Britain) Ltd. have taken the refining sector by surprise with their decision to cancel a planned merger of British refining and marketing assets.
This follows news in March that a third potential merger partner, Murco Petroleum Ltd., withdrew from a deal with Elf and Gulf (OGJ, Mar. 24, 1997, p. 26).
Elf and Gulf had almost completed planning the new joint company, but announced on May 30 that potential benefits would not be as great as originally envisaged.
The bulk of the gain was to come from closure of Gulf's 115,000 b/d capacity refinery at Milford Haven. The merged company was to operate a nearby 108,000 b/d plant owned 70% by operator Elf and 30% by Murco.
The merger was expected to save £50 million/year ($75 million/year) for the combined company through the refinery closure and reduction of duplicated operations.
Elf's plans
Announcing cancellation of the merger, Christian Cleret, managing director of Elf Oil U.K., said: "Whilst we regret that a mutually satisfactory agreement was not reached with Gulf that would provide the benefits and combined cost savings initially forecast, Elf remains committed to build on recent success in restructuring its refining and marketing operations, and we'll continue to explore opportunities to increase our profitability in the challenging U.K. market."
An Elf spokesman said the company installed a hydrodesulfurization plant at its Milford Haven refinery last year at a cost of £70 million ($105 million).
"Our refinery has just completed a major turnaround," said the Elf spokesman, "and it is in good shape. It is one of Europe's most efficient refineries.
"We are committed to continue serving the U.K. and Irish markets, and to do this Milford Haven refinery is an essential part of our plan. We are now determined to build our existing business.
"Our new retail station shops program is bringing tremendous returns. We have also identified new retail opportunities, but we can't reveal them yet."
Gulf's outlook
While Elf's outlook is positive, Gulf's future is cloudy. Gulf's parent Chevron Corp. said it plans promptly to review alternatives to the merger, including sale, to maximize the value of its U.K. R&M assets.
A Gulf official said the stumbling block for the merger was the cutting of the cake: Elf and Chevron had differing valuations of the Gulf contribution to the venture, and these could not be matched up.
Though Chevron is expected to try to sell the whole Gulf business as a going concern, possibly to a foreign company seeking a slot in the U.K. market, the likely outcome is that the Gulf refinery will close down.
Chevron had already decided to close the refinery, said the official. The future of Gulf's 470 retail stations, three distribution terminals and lubricants blending plant is uncertain.
"The whole future of Gulf is under threat," said the official. "If you were to ask will we still be selling under the Gulf brand name in 3 months' time, or even if I will be sitting here then, I can only say I don't know."
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
