Shell Reluctant to Part with California Refinery Amid Asset Sale

Reuters, March 23, 2017

Royal Dutch Shell is in talks with several potential buyers for its refinery outside of San Francisco, but the Anglo-Dutch oil giant is reluctant to part with its last asset in California, three people familiar with the process say. The company is in the midst of a massive asset sale, shedding properties from Thailand to the North Sea to pay down debt following its $54 billion purchase of smaller British rival BG Group last year. Shell, Europe's largest oil company, has sold around $15 billion of assets over the past year as part of a planned $30 billion in asset sales to trim debt incurred from the transaction. Bidders for Shell's 158,000 barrel-per-day Martinez refinery, located 30 miles (48 km) northeast of San Francisco, include PBF Energy and NTR Partners III LLC. Still, sources familiar with the issue say the company wants to sell for a higher price, with one saying the plant could be valued at about $900 million.

Shell, which barred potential buyers from hiring advisors during a first round of the auction, has since allowed third parties to review materials related to a sale, according to one person familiar with the negotiations. Shell declined to comment. PBF referenced its quarterly calls with analysts, where it has said it considers all refining and logistics assets that come on the market, but declined to comment on interest in the specific plant. NTR did not respond to requests for comment. Shell retained Lazard last year to advise on the overall asset sale program. In the fall, Shell retained Deutsche Bank to find a buyer for the Martinez facility.


Over the past 15 years, Shell has sold refineries in Bakersfield and Wilmington, California. Selling the Martinez plant would mark its exit from the state. While state-specific emissions regulations and fuel standards make it more expensive to operate a refinery in California, the plant still drew interest because of its location and ability to process local crude. Among the bidders, PBF bought a refinery in Torrance, California last year, while privately held NTR Partners has bid on other California plants.

Shell California Refinery
Image courtesy of Shell

California's environmental regulations and pipeline connections make the state an island, with few sources for gasoline imports. As a result, when one plant in California is shuttered, margins at other refineries in the state surge. Most operators in the state own more than one plant. PBF, one of the only California refiners with a single operation, would consider buying a second to hedge against disruptions at its troubled Torrance refinery, Jeff Dill, PBF's president for West Coast operations said last month. The Martinez refinery, which has been operating since 1915, processes crude into gasoline, jet fuel, diesel and other refined products and has a coker unit for processing heavy crude. The potential sale would include a pipeline that brings crude produced in California's San Joaquin Valley to the refinery.


(Reporting By Jessica Resnick-Ault in New York and Ron Bousso in London; Additional reporting by Jarrett Renshaw and David French in New York and Liz Hampton in Houston; Editing by Bernadette Baum)

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