march 04 update

Premcor expects to invest $500 million-$520 million this year for maintenance and expansion projects, according to the company. That may include more work in Memphis, where the company is at the early stages of evaluating projects allowing its refineries here and in Lima, Ohio, to process more sour and heavier crude oil.

Besides Memphis, Old Greenwich, Conn.-based Premcor operates refineries in Lima, Ohio and Port Arthur, Texas. At its 178-acre Memphis facility the company employs about 375 people. Last year Premcor spent $261.3 million on capital projects, not including the purchase of the Memphis refinery from Williams Cos. for $455 million.

The Memphis assets include a 190,000-barrel-per-day refinery, two associated truck-loading racks, three petroleum terminals in West Memphis, Ark., Collierville, Tenn., and Memphis, supporting pipeline infrastructure that transports both crude oil and refined products, and crude oil tankage at St. James, La.

Complying with low-sulfur diesel rules will require capital expenditures of $330 million through 2006 at three refineries, with the bulk of that spending slated for next year, according to the company. Premcor expects to spend $175 million on Tier 2 gasoline and on-road diesel regulations this year, up from $144.4 million in 2003.

Premcor also intends to boost spending on discretionary projects, provided its cash flows stay strong.

During the second quarter, Premcor expects to complete its acquisition of Motiva Enterprises' 180,000-barrel-per-day refinery in Delaware City, Del., for $800 million plus $100 million for petroleum inventories.

U.S. oil refining company Premcor Inc. expects a strong refining market this year, thanks to tight product supplies, rising demand driven by an improving economy and the impact of low-sulfur fuel standards. "We believe the market outlook for 2004 as a whole will be favorable for the U.S. refining industry," the company said in its annual report filed with the Securities and Exchange Commission.

In the first two months of this year, Premcor's Gulf Coast 2-1-1 "crack spread," the margin between material costs and the refined product prices, averaged $5.70 a barrel while the Chicago 3-2-1 spread averaged $6.65 a barrel. The WTI/Maya differential averaged $9.30 a barrel.

Refiners should also get a boost from new federal low-sulfur fuel requirements, which began to take effect in January and will be phased in through 2010, the Greenwich, Connecticut, company said.

"More stringent requirements on fuel sulfur content mandated by the federal Environmental Protection Agency will result in a tighter supply of refined products," Premcor wrote.

That's because refiners must shut down to upgrade their facilities, reducing output.

Premcor expects capital spending of $500 million to $520 million this year for expansion projects and maintenance. Last year, the company spent $261.3 million, excluding its purchase of a Memphis refinery.

Complying with low-sulfur diesel rules will require capital expenditures of $330 million through 2006 at three refineries, with the bulk of that spending slated for next year. Premcor expects to spend $175 million on Tier 2 gasoline and on-road diesel regulations this year, up from $144.4 million in 2003.

Premcor also intends to boost spending on discretionary projects, provided its cash flows stay strong. For instance, the company is at the early stages of evaluating projects allowing its Lima, Ohio, and Memphis refineries to process more sour and heavier crudes.

During the second quarter, Premcor expects to complete its acquisition of Motiva Enterprises LLC's 180,000-barrel-per-day refinery in Delaware City, Delaware, for $800 million plus $100 million for petroleum inventories.

The purchase will be funded by a 50-50 mix of new equity and debt. Motiva is a joint venture owned by Royal Dutch Shell Group and Saudi Arabian state oil company Aramco.

ExxonMobil Billings Refinery Tax Breaks Extended
Yellowstone County commissioners have agreed to extend property tax breaks to the ExxonMobil Billings refinery for a new $75.7 million addition.

The new Low Sulfur Motor Gas project, which was completed last fall, reduces sulfur content in motor fuels to meet new requirements of the federal Environmental Protection Agency.

Bruce Brodie, refinery manager, described the project as a "stay in business" investment because the refinery wouldn't be able to operate unless it produces fuels that meet new, stricter pollution standards.

"If we didn't make this investment, the refinery would close," Brodie said in response to a question from commissioners.

Brodie said the parent corporation considers the Billings refinery an independent business unit that must show an adequate financial return. The tax incentive offered by Yellowstone County helps assure a competitive return on investment, he said.

Scott Langman, director of the Small Business Development Center at the Big Sky Economic Development Authority, said all three Billings refineries are making significant investments in order to produce fuels that meet new pollution standards.

Brodie said the Billings refinery is the smallest among ExxonMobil's refineries in the United States, and the corporation's decision to invest in the Billings refinery is good news for the local community.

Brodie said oil companies constantly consider whether to keep refineries in business, and refineries are closed from time to time. Shell recently decided to close a refinery in Bakersfield, Calif., and ExxonMobil decided to close a refinery in southern Australia, he said.

The ExxonMobil Billings refinery provides 246 full-time jobs, plus another 111 jobs for contractors.

Valero Chief Eager to Buy Refineries
Bill Greehey, chairman and CEO of the largest U.S. independent refiner, Valero Energy, doesn't want to build refineries. He just wants to buy them.

"I would take so much money and so much time to get all the permits and all the engineering to build one," he said."It just wouldn't be worth it."

A combination of environmental rules limiting supply and increased consumption by gas-guzzling sport utility vehicles has brought the U.S. gasoline market into tighter balance than it has been in 25 years.

In 24 years, Greehey has turned San Antonio-based Valero from a natural gas gathering subsidiary into a company whose refineries process about 12 percent of the 20.5 million barrels of crude oil North American refineries take in every day.

Earlier this month, Valero paid $465 million to buy a 315,000 barrel per day refinery in Aruba from El Paso Corp., the 15th plant the company has acquired since 1997.

Valero also put up $162 million in working capital.

"We just bought Aruba, and its replacement cost is $2.4 billion — and it doesn't make gasoline," Greehey said in a weekend interview on the eve of the National Petrochemical and Refiners Association annual meeting in San Antonio the week of March 21.

Greehey joked about his reputation as an aggressive buyer of refineries when asked if there were any other refineries he wanted Valero to acquire.

"All of them," he said and laughed. "I want 'em all."

Greehey continues to believe that Wall Street forecasts of Valero's 2004 per-share earnings are too low. The average of those forecasts for Valero now stands at $6.02.

Greehey said the addition of the St. Charles refinery in Louisiana in mid-2003 will bring $200 million in operating income this year. A new unit at the Texas City refinery producing 45,000 barrels per day in coke will bring in at least $120 million.

"I think when I told them they were too low, I think they adjusted it 20 cents for the year," Greehey said. "So, you know that's really not a definition of significant."

Valero is paying less this year for the sour grades of crude it specializes in refining because more refiners are buying sweet crude grades to meet lower sulfur standards, Greehey said.

Valero's refining margin is also 15 percent higher than last year.

Greehey, 67, said he has no plans to retire. "It's still fun," he said. "We're still doing well."

Ashland to Sell Refinery Stake to Marathon
Ashland Inc. is selling its minority stake in the nation's fifth-largest gasoline refining and marketing business to partner Marathon Oil Corp. in a $1.1 billion cash and stock deal, the companies announced March 19. Ashland shares soared nearly 8 percent on the news.

As part of the deal giving it full ownership of Marathon Ashland Petroleum LLC, or MAP, Marathon will also acquire Ashland's maleic anyhydride business and 61 Valvoline Instant Oil Change centers in Michigan and northwest Ohio as part of the transaction.

Ashland said its shareholders will receive Marathon stock valued at $315 million for the sale of the company's share of MAP. The deal also includes approximately $794 million in cash and accounts receivable to be distributed to Ashland by MAP. Marathon will assume $1.9 billion in debt.

In trading March 19, Ashland shares were up $3.64 at $50.35 on the New York Stock Exchange, while Marathon shares slipped 49 cents to $34.92.

The deal is subject to approval by Ashland shareholders and regulators.

Ashland, based in Covington, Ky., owns 38 percent of Marathon/Ashland Petroleum. The rest is owned by Houston-based Marathon.

The refining and marketing business has been a drag on earnings at Ashland, which also has chemical, road construction and auto products divisions. Ashland said it would use cash generated from the deal to retire all or most of its debt and other financial obligations.

Ashland's operations include road construction, specialty chemicals, lubricants, car-care products, chemical and plastics distribution and transportation fuels. Brands include Valvoline motor oils, Eagle One appearance products, Zerex antifreeze and Pyroil performance products.

The Department of Justice, the Environmental Protection Agency (EPA), and the Kansas Department of Health and Environment (KDHE) announced that Coffeyville Resources Refining and Marketing, LLC, and Coffeyville Resources Terminal, LLC, have agreed to bring two refining facilities formerly owned by Farmland Industries into compliance with federal and state environmental laws. The settlement will result in a total reduction of more than 1750 tons per year in pollution and ensure cleanup of hazardous waste at the refinery and the terminal. The consent decree, which was filed in the U.S. District Court for the District of Kansas, addresses the Farmland refinery in Coffeyville, Kansas, and the Farmland terminal in Phillipsburg, Kansas.

According to EPA and KDHE, the refinery has been in violation of the federal Clean Air Act and state air pollution control regulations since the 1990's because Farmland failed to install the appropriate emissions controls or best available control technology (BACT) when it increased the refinery’s capacity from 71,000 to 125,000 barrels per day. The two Coffeyville Resources entities were created for the purpose of buying the troubled refinery and terminal, among other assets then owned by Farmland. On March 3, 2004 Farmland’s assets were sold to Coffeyville Resources under the supervision of the federal bankruptcy court.

By entering into the consent decree, Coffeyville Resources acknowledges that the refinery will require significant capital improvements in order to comply with state and federal regulations governing the refinery’s air emissions. The consent decree requires Coffeyville Resources to take interim steps to reduce the refinery’s air pollution and install the BACT by the year 2010. EPA estimates that by 2010 the refinery improvements will reduce emissions of nitrogen oxides (NOx) by approximately 553 tons per year, and sulfur dioxide (SO2) emissions by 1200 tons per year.

The consent decree will also require the refinery to reduce its emissions of volatile organic compounds (VOCs), particulate matter, and benzene. EPA estimates that the refinery improvements will cost approximately $22 million. Coffeyville Resources also assumes Farmland’s hazardous waste cleanup responsibilities under the Resource Conservation and Recovery Act (RCRA). The cost of hazardous waste cleanup could reach $15 million.

“This settlement brings the company into compliance by requiring use of state of the art emission controls resulting in significant reductions in the refinery’s air pollution and also ensures hazardous waste cleanup,” said Jim Gulliford, EPA’s Region 7 Administrator.

The consent decree will require Coffeyville Resources to meet a schedule for bringing the refinery into compliance, while providing Coffeyville Resources with reasonable assurance that it will not be penalized for Farmland’s violations of the law.

McPherson Refinery to Begin Modernization Project
The National Cooperative Refinery Association McPherson oil refinery will begin a $320 million modernization project.

A number of contractors have begun hiring for construction work, which is beginning now and will be completed in fall 2005.

The project will enable the NCRA refinery to meet federal low-sulfur gasoline and diesel fuel regulations that go into effect in 2006.

Jim Richardson, director of human resources for NCRA, said the project will require hiring about 800 people.

"There will be some specialized jobs that they'll have to bring people in to fill, but most of the labor will be hired locally," he said.

Engineering and planning work has been ongoing for about a year, he said.

"The $320 million is the price tag for us to do this," Richardson said. "Across the country, there are smaller refiners who will simply go out of business because they can't afford to make the necessary changes."

The work will involve the installation of a processing device called a unicracker.

"Basically, what we are talking about doing is putting the fuel we now make through an additional refining step that will separate out the sulfur," Richardson said.

NCRA is a relatively small refinery, with a capacity to refine about 75,000 barrels of oil a day.

The Frontier Refinery at El Dorado, by comparison, refines about 110,000 barrels a day. Flint Hills Resources, owned by Koch Industries, operates two refineries in other states that process a total of 600,000 barrels a day.

NCRA had annual revenue of $962.4 million in 2002 and employs 534 people, according to the company's Web site.

NCRA is owned by three agricultural cooperatives, Cenex Harvest States, based in St. Paul, Minn., Missouri Farmers Association, based in Columbia, Mo., and Growmark of Bloomington, Ill.

"We sell our product directly to them, and they market it to their co-op members," Richardson said.

The company makes gasoline and on-road and off-road diesel fuel.

The modernization project will involve work by a number of contractors. The skills required of workers will vary, as will the pay levels.

Exxon of Beaumont, Texas, Refinery's Wet Gas Scrubber Operating
Plumes of steam are the visible results of ExxonMobil's Corp.'s new wet gas scrubber, which began the week of March 21 emitting water vapor that condenses into mist as it cools.

The refinery began building the $60 million scrubber in June 2002 on its major gasoline processing unit.

Refinery spokeswoman Kathleen Jackson said the scrubber will cut emissions of sulfur dioxide at the gasoline unit by 90 percent.

That particular unit emits 11,000 tons per year of sulfur dioxide and the scrubber will eliminate 10,000 tons per year, she said.

The refinery, overall, emits 13,000 tons per year of sulfur dioxide, so the entire plant's reduction is about 77 percent.

The scrubber works through mixing water vigorously with flue gas in the gasoline processing unit to wash out pollutants.

The gas and water mixture enters a separator drum where the cleaned gas rises and the water moves downward to be recycled.

In the process, some of the water vaporizes and is emitted as steam from the scrubber stack.

Jackson compared it with a washing machine, although it's big enough to wash 15,000 loads of dirty clothes per day using 36,000 gallons per hour, she said.

The bill for all that washing comes to about $10 million per year, she said. Most of it is energy cost.

ExxonMobil, as a corporation, formed in November 1999 in a merger between Exxon Corp. and Mobil Oil Corp. The U.S. Department of Justice required the new corporation to divest some of its properties to avoid antitrust problems.

Former Okmulgee Refinery Cleanup Enters Next Phase
The former Okmulgee Refinery site is making progress toward completing a lengthy cleanup process, thanks to a unique cooperative agreement between three parties: the Oklahoma Department of Environmental Quality (DEQ); the Okmulgee Area Development Corporation, which purchased the property in 1997; and one of the former owners, ConocoPhillips (formerly Phillips Petroleum Company).

As a result of ConocoPhillips' voluntary cleanup efforts, a great deal of work has already occurred. All onsite structures, tanks and vessels were demolished, underground piping was removed, and thousands of gallons of waste liquids were recycled. A site assessment to evaluate the remaining wastes and determine the extent of environmental impact was performed and submitted to DEQ.

During 2003, ConocoPhillips completed extensive work onsite to determine what cleanup or remediation work remained, and to evaluate treatment options. Final work plans are being developed and will include environmental monitoring, site activity schedules and public communication. This upcoming work will be ongoing over the next several years.

The next phase of work will see some increased truck traffic in the area as heavy equipment is brought onsite for a variety of project activities. Initial work to clear brush and grade areas that do not require further remediation will begin the week of March 22. Haul roads will be constructed onsite in preparation for site remediation activities.

Citgo Refinery to Expand
A huge new expansion project at Citgo's Lake Charles refinery is expected to have a major impact on the local and state economy. That word comes from Governor Kathleen Blanco, who attended a press conference to announce the project. She says it's a clear indication that Louisiana's financial fortunes are on the rebound.

Citgo is investing a combined 500-million dollars into two separate projects: the first is a facility that will increase the refinery's capacity to process crude oil by over 100,000 barrels a day. "That's practically a new refinery here. Increasing the capacity gives us an increase in volume, and we can increase our market share, also," says Citgo President and CEO Luis Marin.

Citgo is also adding a second gasoline hydrotreater. It's a machine that will ensure that the refinery produces environmentally friendly fuels. "The EPA passed new regulations beginning in January of this year that mandates that sulfur will be taken out of gasoline over a two year time period," says Al Prebula, Vice President of Citgo Lake Charles.

Citgo is employing 45 different contractor companies for the program, and has so far invested over two million man hours. Prebula adds, "We're employing a lot of people. It's resulted in a lot of construction jobs. We're going to have some permanent jobs, and it presents a multiplier effect, where it produces seven jobs for every job we have."

When all of the expansion projects are completed, the Lake Charles refinery will be the fourth largest refinery in the country. The first phase of the project is expected to be completed in May, while the second -- the crude vacuum expansion project -- will become functional in April of 2005.

Premcor to Pay Illinois $191K for Refinery Clean Up Costs
Premcor Refining Group will reimburse the state of Illinois more than $191,000 as part of an agreement with Illinois Attorney General Lisa Madigan to investigate contamination at its closed Blue Island Refinery site.

The funds will reimburse the Illinois Environmental Protection Agency for its costs to investigate, oversee and clean up the site between April 1997 and June 2003.

Premcor, which had been based in St. Louis until 2002, shut down the Blue Island, Ill., refinery in January 2001. Madigan said during the decades of operation, there were numerous releases of crude oil, gasoline and other petroleum products at the site. The IEPA is seeking to determine how much of those materials remain in the soil and groundwater.

Premcor agreed to conduct soil and groundwater samples in the area, and is required by court order to submit its results and findings to Madigan's office and the Illinois EPA.

Premcor closed down its refinery in Hartford, Ill., in Madison County, in October 2002 and sold it to ConocoPhillips in 2003 for $40 million.

Premcor, once the largest private company in St. Louis with annual sales of $6.4 billion in 2001, went public in 2002 with an initial public offering that netted the company $482 million. It closed its St. Louis office late last year.

In a deal that Marathon Oil Corp. said would complement its long-term growth plans, the Houston-based oil and natural gas company reported it will acquire Covington, Ky.-based Ashland Inc.'s 38% interest in Marathon Ashland Petroleum LLC (MAP) for $2.93 billion.

Marathon already holds a 62% interest in Findlay, Ohio-based MAP. Once completed, the deal would make Marathon sole owner of MAP, which is the largest refiner in the US Midwest and the fifth largest refiner in the US.

Clarence P. Cazalot Jr., Marathon president and CEO, said, "Acquiring full ownership of MAP provides us with substantial growth opportunities and leverages our access to the profitable Midwest growth markets. At the same time, Marathon will retain the financial and operational flexibility to continue investing in new and existing core exploration and production operations, as well as our emerging integrated gas business."

James J. O'Brien, Ashland's chairman and CEO, commented, "This transaction represents the best opportunity for Ashland and its shareholders to capture the value that has been created through this joint venture."

Closing of the deal, which is expected in the fourth quarter, is contingent upon a number of conditions, including a favorable tax ruling from the US Internal Revenue Service as to the tax-free nature of the transaction, Ashland shareholder approval, Ashland public debt holder consents, and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act.

As part of the transaction, Marathon will acquire certain other complementary Ashland businesses for additional consideration of about $94 million, it said.

These additional transactions include Marathon's acquisition of Ashland's maleic anhydride business, including the company's Neal, WVa., plant, which is adjacent to MAP's Catlettsburg, Ky., refinery. Marathon also will acquire a portion of Ashland's Valvoline Instant Oil Change business, consisting of 61 retail outlets in Michigan and Ohio. "While not part of MAP, these additional assets are complementary to MAP's business," Marathon said.

Marathon said it plans to initiate an offering for about $1 billion in new Marathon common shares "as soon as practical." Marathon added that it plans to use proceeds generated by this offering, along with existing Marathon cash resources, to pay down its debt.

MAP owns and operates seven refineries with a total capacity of 948,000 b/d of oil as well as more than 8,000 miles of pipeline. MAP markets its petroleum products through a network of nearly 6,000 retail outlets under the Marathon, Speedway, Super America, and Pilot Travel Center brands.

MAP's refinery locations and capacities are: Garyville, La., 245,000 b/d; Catlettsburg, 222,000 b/d; Robinson, Ill., 192,000 b/d; Detroit, Mich., 74,000 b/d; Canton, Ohio, 73,000 b/d; Texas City, Tex., 72,000 b/d; and St. Paul Park, Minn., 70,000 b/d.

MAP owns 88 light product and asphalt terminals, 175 truck-loading racks, and 185 owned or leased trucks.

MAP owns, operates, leases or has an ownership interest in Marathon Ashland Pipe Line LLC's system.

"The transaction strengthens Marathon's business profile, giving it 100% control over an advantageously located, high-quality refining and marketing network that consistently ranks at or near the top of most major operating metrics," said S&P credit analyst John Thieroff.

"In addition, by eliminating cash distributions paid to Ashland (average of $338 million from 2001 through 2003), Marathon will have greater cash available to reinvest in growth projects, strategic acquisitions, or ultimately to redeploy to its growing slate of large, capital-intensive upstream projects," Thieroff added.

"While the sale of its MAP interest would meaningfully diminish Ashland's business profile, the resulting debt-free capital structure. . .and good initial cash position are offsetting strengths," said S&P credit analyst Wesley E. Chinn.

"Over time, Ashland's management is expected to improve its business mix in a manner that maintains a conservative financial profile resulting in cash flow protection measures appropriate for the "BBB" corporate credit rating," he added.

Husky Energy Announces Prince George Oil Refinery Upgrade
Husky Energy announced that it will proceed with upgrading its Prince George Oil Refinery to produce low sulfur gasoline and diesel fuels that meet the Government of Canada's new fuel specifications. The estimated project cost will be $73 million (Cdn) and the facility is anticipated to be on-stream by the second quarter of 2005.

"Husky Energy is committed to continuous improvements in its operations facilities," said Mr. John C.S. Lau, President & Chief Executive Officer of Husky Energy. "This investment in the Prince George Refinery complements our position as a responsible manufacturer and marketer of environmentally friendly fuels," said Mr. Lau.

Mr. Lau further stated that, "the investment in upgrading the facility will make economic sense as Husky will not need to purchase an alternate fuel supply, and it will enhance Husky's Refined Products division's return on investment."

The British Columbia Government has been a strong proponent of the project. B.C. Minister of Energy and Mines, Richard Neufeld stated, "Husky Energy has demonstrated its continued high level of environmental responsibility, including its ongoing commitment to clean fuel and clean air. The province is committed to encouraging opportunities for oil and gas industry investment in all regions of the province."

The Prince George Refinery currently produces in excess of 10,000 barrels per day of gasoline and diesel. With this upgrade expansion, production at the facility could increase to 12,000 barrels per day. Husky Energy has positioned itself in Canada in the development of ethanol-blended fuel and has received government recognition for the low combustion emissions of its ethanol-blended gasoline. The upgraded facility provides an opportunity for Husky to grow its ethanol blended fuel business in B.C.

SNC-Lavalin, an engineering and construction firm with strong project management and construction experience has been appointed by Husky to provide detailed design and construction management for this project.

Husky Energy is a Canadian based integrated energy and energy related company headquartered in Calgary, Alberta. Husky Energy is publicly traded on the Toronto Stock Exchange under the symbol HSE.

Ecopetrol Taps Axens for Basic Engineering on Barrancabermeja Refinery Upgrade
Colombia's Empresa Colombiana de Petróleos (Ecopetrol) has awarded a basic engineering and licensing contract for upgrading its 230,000 b/d Barrancabermeja refining complex. The work, to be performed by the US subsidiary of French firm Axens IPF Group Technologies, will enable Ecopetrol to produce cleaner fuels that conform to a 2003 government directive.

Axens will subcontract individual elements of the work, implementing technologies for upgrading diesel and gasoline qualities to the new specifications.

Prosernat IFP, Paris, will upgrade the sulfur recovery facilities; Technip KTI, Rome, will install the hydrogen production facilities; and Tipiel SA, Bogotá, will perform associated engineering.

The project will include a 55,000 b/d diesel hydrotreater, a 19,000 b/d FCC gasoline desulfurizer, a 55 ton/day sulfur recovery unit (SRU), 139 ton/day Claus tail gas treatment for all SRU effluents, a hydrogen plant producing 18 MMscfd of 99.9% purity hydrogen including a new methane steam reformer and a separate pressure swing adsorption unit to recover H2 from the existing stream, a 2,100 ton/day amine regenerator, 2,550 ton/day sour water stripping facilities, and utility interconnection and off-site storage tank facilities.

Ecopetrol said it would award the engineering, procurement, and construction contract within the year and would have the new units in full operation by 2007.

Petrobras, Sinopec May Build Oil Refinery in Brazil
Petroleo Brasileiro SA, Brazil's government-controlled oil producer, and China Petroleum & Chemical Corp., known as Sinopec, may build an oil refinery in Brazil, said Brazil's Foreign Minister Celso Amorim.

The companies may seek a third partner for a venture to explore, produce or refine crude oil, said Amorim.

``We have only 11 refineries in Brazil, which doesn't give us enough capacity,'' said Mario Vilalva, head of the Brazilian foreign ministry's trade promotion department. ``We're exporting oil and importing refined products.''

The minister is in Beijing on a three-day visit ending tomorrow to lobby China to help finance railroads, roads, agriculture and mining in South America's largest economy to speed the flow of soybeans, meat and minerals to China.

PERU

Peru Sells 31% Stake in Pampilla Refinery for $71 Mln
Peru sold a stake in the oil refinery Refineria La Pampilla SA, majority-owned by Spain's Repsol YPF SA, for $71 million, cutting the price as the government seeks to revive the country's asset sales program.

Peru sold its 31% interest, or about 11 million shares, for $6.30 a share, said Boris Ljubicic, general manager of Wiese Sudameris SAB, the brokerage that handled the sale. Peru had canceled a previous sale of the asset on March 3, on recommendation of its adviser, J.P. Morgan Chase & Co. The offered price in the earlier sale $7.25 a share.

``It is a success,'' Ljubicic said. ``The Peruvian government is no longer shareholder of La Pampilla. The market reacted positively to the discount from the original price.''

The government is resuming a program of state-asset sales that was halted in 2002 when the sale of two power generators to Belgium's Tractebel SA sparked riots in the southern city of Arequipa. The Pampilla stake is the most valuable asset the government plans to shed as it seeks to earn $109 million from sales this year.

The Peruvian government collected $13 million in state asset sales in 2003, compared with its original projection of $400 million.

Refineria La Pampilla, 50 percent owned by Repsol, is the country's main oil refinery and competes with the government- owned Talara refinery.

La Pampilla's net income fell to 19 million soles ($5.5 million) last year from 70 million soles in 2002, after Jose Manuel Prieto, the company's general manager, complained in January 2003 that the Peruvian government was subsidizing fuel prices though its refinery.

The Peruvian unit of Exxon Mobil Corp. owns a 6 percent stake in the Pampilla refinery

Venezuela Warns of Need to Increase Atlantic Basin Refining Capacity Venezuela's deputy hydrocarbons minister and Petroleos de Venezuela (PDVSA) director Luis Vierma has warned a US Energy Council 2004 Conference that “it becomes urgent to discuss and seek agreement on the matter of energy policy and investment required to increase refining capacity in the Atlantic basin, for the purpose of meeting a growing oil products demand, especially in the United States.” Vierma was addressing 150 governmental, legislative and business leaders from the United States and Canada attending The Energy Council’s 2004 Conference in Washington.

Vierma emphasized a pressing need to build new refineries, taking into account such major aspects as geographical location in relation to the United States -- the region’s main market -- volumes to be processed, investment, manpower, technology, prices, quality of products, as well as complying with ever-more demanding environmental regulations.

“The decision to undertake the task of overcoming this imminent deficit in refining capacity should be taken shortly ... because it takes from three to five years to build a new refinery. The United States particularly has little room for maneuver in increasing its processing capacity and, moreover, in meeting operational contingencies in their refining plant.”

Vierma also encouraged Energy Council members to play an active role in seeking solutions to the challenge, as well as strengthening complementary energy ties that unite the United States, Canada and Venezuela. He reiterated Venezuela’s wish to keep open all available communications and contact channels on energy with the United States, with the aim of reinforcing the safety and reliability of hydrocarbons supplies, and referred to the efforts already being made in this direction by the Ministry of Energy & Mines (MEM) and the Venezuelan Embassy in Washington, where Ambassador Bernardo Alvarez Herrera and Minister Counselor for Energy Affairs Fadi Kabboul maintain an intense and ongoing agenda of contacts with United States government, legislative, financial and business leaders.

The US Energy Council is an organization which brings together legislators from the country’s oil and gas producing states: Alabama, Alaska, Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Texas and Wyoming, and three foreign members: Canada, Nova Scotia and Venezuela.

Venezuela is the world’s 5th largest oil and gas exporter, and it supplies close to 15% of US crude oil and refined product imports. It has the largest proven reserves in the western hemisphere (78 billion barrels of conventional crude and 147 trillion cubic feet of gas). It currently produces 3.1 million barrels of crude per day, and has 24 refineries (6 of them in Venezuela, 1 in the Caribbean, 8 in the United States and 9 in Europe), with a combined processing capacity of 3.3 million barrels per day.

Shell Gives Long-Term Pledge to Australian Oil Refining

Royal Dutch/Shell Group (RD) has given a long-term commitment to the Australian oil refining industry.

The comments by Shell Australia Chairman Tim Warren at the 50th anniversary celebration of the company's 125,000-barrel-a-day Geelong refinery in Victoria comes amid speculation the Australian refining industry is likely to undergo a round of rationalization.

“Shell has a long-term commitment to its refining business in Australia and the projects Geelong refinery is working on in 2004 and beyond will ensure it continues to be a competitive fuel supplier while striving to meet Shell's economic, environmental and social responsibilities," Warren said in a statement.

Warren didn't comment on the future of Shell's smaller 86,000-bpd Clyde refinery in the state of New South Wales.

With seven refineries and one mini-refinery, Australia has excess capacity, some analysts have said.

The refineries have a combined processing capacity of about 733,00 barrels a day, competing against refineries in Asia, some of which have individual output of 400,000 bpd.

The Australian government's new fuel standards, which include the production of low-sulfur and low-benzene fuels, are widely expected to spark further rationalization, given the level of investment needed to upgrade plants before the rules take effect in 2006.

Shell has already spent A$30 million at Clyde and A$100 million at its Geelong refinery to bring both plants into line with tighter regulations on sulfur content in diesel.

Rival refiner Caltex Ltd. (CTX.AU) recently detailed plans to spend a total of A$295 million upgrading its two Australian refineries.

Rationalization of the sector started last year when Exxon Mobil Corp. (XOM) decided to close its 72,000-bpd Port Stanvac refinery in Adelaide in June. This increased speculation about the future of Exxon Mobil's other Australian refinery.

BP Sees No Supply Cuts From Kwinana Refinery Shutdown
U.K.-based BP PLC (BP) said that it doesn't expect any supply disruptions from its Kwinana oil refinery in Western Australia State as a result of a partial shutdown due late April.

A BP spokesperson said that the "routine" shutdown will run for approximately three weeks.

"There shouldn't be any issues of supply as all the contingencies are in place," she told Dow Jones Newswires.

Located just south of Perth, Kwinana has the capacity to produce 138,000 barrels of crude oil a day and is Western Australia's only oil refinery.

Tax Break Welcomed for Ethanol Refinery Plan
The company planning a multi-million project to build an ethanol refinery at Swan Hill says a further tax break for the ethanol industry makes the project even more robust.

The Government had previously announced a five-year excise-free period for ethanol fuels, but has now agreed to give the industry eight years before excise is phased in for the industry.

Indcor is planning Australia's first purpose-built ethanol refinery at Swan Hill, and chief executive Peter Anderton says while the project was viable under the original arrangement, the new concessions are even better.

"It gives us another three years of an excise-free position which is beneficial to the project economics," he said.

China Petroleum & Chemical Corp., (SNP), or Sinopec Corp., has decided to centralize its decision-making for expansions of its refineries at its Beijing headquarters, with immediate effect, a company official said on March 8.

Under the program, Sinopec will initiate expansion plans for its refineries and have the final say on whether expansions are needed, the official said. Until now, expansions were initiated by individual refineries without much consideration of Sinopec's overall expansion plan.

Decisions on which units are to be expanded at each refinery will also be made in Beijing. The new approach will better optimize Sinopec's existing units, the official said.

"When we think about refinery expansions, we have to consider the future crude supply and infrastructures that will transmit the crude throughput if (the products) will be used elsewhere," he said.

As part of the plan, Sinopec will also expand a few refineries in coastal areas into "super large" refining centers, he added.

The current focus of the company's expansion is on secondary refinery units, as Sinopec is working to improve the quality of its oil products to meet new specifications, he said. China rolled out new specifications for diesel and gasoline last year, in a bid toward using cleaner fuels.

Sinopec also plans to expand refineries in coastal areas to enable them to process more high sulfur crudes imported from the Middle East.

"As the Middle East crude imports are increasing, we have to upgrade some units," the official said.

China's refining capacity totals about 289 million metric tons, of which 55% is owned by Sinopec. Most of Sinopec's refineries are located in the east and south of the country.

Sinopec Obtains Government Consent for Oil Pipeline along the Yangtze River
China's largest listed oil refining company Sinopec Corp. confirmed to Interfax that the State Council has already granted approval for the company's proposal to build a pipeline along the Yangtze River, bringing imported oil from China's eastern coast to refineries in the hinterland.

Sinopec spokesman Sang Jinghua also noted that the company has been studying the possibility of expanding its ethylene capacity by building more cracking units in China.

Sinopec is currently the largest oil refiner and petrochemicals producer in China. The company's ethylene capacity amounts to 3.4 mln tons, after taking over a 380,000-ton plant in southern China's Maoming from parent company the Sinopec Group last year.

The domestic oil industry publication Zhongguo Shiyou Bao, run by the second largest refiner PetroChina, cited the U.S. magazine Chemical Week, which said that Sinopec had planned to invest USD 10 bln to build four 10-mln-ton ethylene crackers from 2007 to 2010. The facilities will be accommodated and operated by the company's existing refineries, namely Shanghai Petrochem, Tianjin Petrochem, Wuhan Petrochem and Zhenhai Refining & Chemical. Except for Shanghai Petrochem, the refineries do not produce ethylene at present.

As for the along-Yangtze oil pipeline project, the refining giant said it was not ready to release any details.

But according to the official website of the China Petroleum & Chemical Industry Association (CPCIA), the 996-km pipeline, originating from Jiangsu Province on the east coast to Hunan Province in central China, is expected to link six Sinopec plants, including five refineries where there is a combined 24.5 mln tons of processing capacity currently.

Sinopec will reportedly start construction for the pipeline this June and finish it one year later, with total investment projected at RMB 3.9 bln (USD 471 mln).

Transmission volume via the pipeline is seen to reach 15.8 mln tons in 2005, and upgrade to 20.6 mln tons in 2010 and 22.5 mln tons in 2015.

Crude oil delivery to waterfront refineries in central China, mostly run by Sinopec, still solely depends on the Yangtze River, which has stymied the company's capacity expansion plan in the area.

Saudi's Naimi to Visit China To Discuss Crude, Refinery
Saudi oil minister Ali Naimi will visit China April 1 and 2 to hold talks with Chinese government and industry officials on energy issues, China-based industry officials said on March 31.

Naimi will meet with officials from China's National Development and Reform Commission, China's top economic planning body, and officials from China Petroleum & Chemical Corp. (SNP), or Sinopec Corp., they said.

They said Sinopec will discuss long-term crude supplies from Saudi Arabia as well as oil and gas exploration and production in Saudi Arabia by Sinopec and other Chinese companies, while Naimi is more interested in sorting out the remaining issues for the expansion of a refinery in Fujian province.

Saudi Arabia is China's largest overseas crude import source, with volumes last year reaching 15.18 million metric tons, up 33% on year, or 17% of China's total. Most of Saudi's crude exports to China were processed by Sinopec last year

Saudi Arabia Oil Co., or Aramco, has a 25% stake in a refinery expansion project in China's Fujian province. The refinery will be expanded to 12 million tons/year or 240,000 barrels a day from 4 million tons/year or 80,000 b/d now.

Exxon Mobil Corp. (XOM) holds another 25%, while Sinopec has a 50% stake in the project.

Chinese industry sources said negotiations on the project have become deadlocked on the issue of oil retail sales rights, with Exxon Mobil insisting on building about 600 oil retail outlets in the province and on some wholesale rights.

Oil PSUs Bail out Reliance Again
Reliance Industries Ltd will have to sell petroleum product at a discount so as to make the backing down in public sector refinery output commercial attractive, senior government officials said.

According to a deal brokered at a meeting convened by Petroleum Minister Ram Naik, state-owned oil retailers will buy 6.5 million tons of petroleum products from Reliance for another year to give time to the country's sole private sector refiner to set up its first phase of 1,500 petrol pumps.

The state firms had planned to cut purchase of petrol, diesel, kerosene and LPG from RIL to 4.3 million tons from current year volumes of 12 million tons owing to expansion of Mumbai refinery of BPCL and Chennai refinery of IOC and recognition of Mangalore refinery's full capacity.

"The 4.3 million tons requirement had not factored in the shutdowns the refineries are due to take for maintenance next year and so the volumes will go up," Petroleum Secretary B K Chaturvedi said.

ONGC to Expand MRPL Capacity by Another 3 mt
ONGC plans to invest close to Rs 2,000 crore for adding another three million tons refining capacity to its 9.69-mt Mangalore refinery.

The move will help ONGC, which holds 71.6 per cent stake in Mangalore Refinery and Petrochemicals Ltd (MRPL), ensure higher product availability for its national network of 1,100 retail outlets expected over the next two years. The refinery expansion will coincide with ONGC's retail plans, a senior official told Business Line. Also, MRPL has permission to set up 500 retail outlets under its own brand name.

"We plan to add another refinery train to the existing two trains at the Mangalore refinery. We will begin with de-bottlenecking of existing capacity taking the present capacity to 11 million tons and then to 12.69 million tons over the next one and a half to two years," the official said.

The expansion at MRPL will also ensure that the refinery can process more varieties of crude, especially those which will be imported from ONGC's equity fields abroad.

The company plans to upgrade technology at MRPL to improve gross refinery margins and enable production of new higher margin products such as mixed xylene. ONGC has also announced plans to set up a petrochemicals project in Mangalore.

"The refinery processes crude from the Mumbai High as well as the Sudan crude that we have begun importing since last year. The expansion will ensure it can refine more types of crude. It will also ensure compliance with Euro IV environmental specifications as per the national auto fuel policy," the official said.

As per the national auto fuel policy released on October 6, 2003, India should achieve Euro IV vehicle emission norms by 2010. India's oil refineries will have to spend Rs 20,000 crore for upgradation to meet these Euro IV norms.

MRPL plans to upgrade its refinery for producing higher quality petrol and diesel meeting Euro III standards by 2005 and Euro IV specifications by 2007.

Bathinda Refinery Issue Heats up Again
With Lok Sabha elections round the corner, the Rs 16,000-crore Bathinda grassroots refinery project is once again in the glare of publicity after Prime Minister AB Vajpayee criticized the Congress in Punjab for raising hurdles in the completion of the project at Patiala and the Punjab government planning to hit back at Centre.

Rs 350 crore has already been spent on the project, situated at Phulokhari near the Raman town of Bathinda. The last work tender for the project was requested in January 2003 and once the Amarinder government started dragging its feet in signing the "deed of assurance" with Hindustan Petroleum Corporation Limited (HPCL), the project suffered a set back. They were seeking a revision of the provision for giving a Sales Tax concession.

For the HPCL the viability of the project depends on the Sales Tax concession by the state government and the demand for production at the refinery. However Congress leaders said that 15-year concession of Sales Tax to the refinery was not viable, as it would cause huge revenue loss to the state.

In the beginning the refinery project was started with a capacity of nine million tons, to be installed at a cost of Rs 10,000 crore by the end of 2002. For the loss of time, the cost overrun (and the HPCL ), substantially reduced the project capacity to six million tons per annum, anticipating low demand.

According to HPCL sources, the company has already spent about Rs 350 crore. Besides building a18.5 km boundary wall around 2000 acres of land, acquired for the refinery, three main approach roads to the refinery have been constructed and widened. These are link roads between NH-64 and project site (18 km), Talwandi Sabo to Raman Mandi (13 km) and Kanakwala village to refinery (8.25 km). A network of about 30 km roads has been laid within the refinery boundary.

A 12 km long captive canal to supply fresh water to the refinery has already been laid from Bangi to the refinery site.

The HPCL has already obtained "right of way" from the farmers for laying a 1000 km long pipeline from Kandla port to the refinery.

HPCL to Raise Capacity of Mumbai Refinery
Hindustan Petroleum Corp (HPCL) is planning a maintenance shutdown of two units of its Mumbai refinery in early May and raising the capacity of the refinery through de-bottlenecking from 5.5 million tons per annum to 7.9 million tons.

The refinery's 3.50 million tons per annum capacity crude distillation unit and a vacuum distillation unit will be shut for 15 days starting the first week of May as part of a maintenance and revamping plan, company sources said.

The company is in the process of investing over Rs 2787 crore in raising its Mumbai and Vizag refinery capacity through de-bottlenecking and process upgrading for higher volumes and better fuel quality.

De-bottlenecking of the primary and secondary processing units would result in HPCL's Mumbai refinery's capacity going up to 7.9 million tons from 5.5 million tons while Vizag capacity would go up to 8.3 million tons from 7.5 million tons, they said.

The Rs 1152.2 crore project, which includes a foreign exchange component of Rs 178.5 crore, would maximize Mumbai refinery distillate yield and enable it to produce Euro-III specification petrol and diesel.

HPCL mulls stake in Bina refinery
State-run Hindustan Petroleum Corporation Ltd (HPCL) is in talks with Bharat Petroleum Corporation Ltd (BPCL) to pick up stake in the Rs 6,354-crore Bina refinery in Madhya Pradesh to secure a permanent source of petroleum products for its operations in central India. HPCL is in dialogues with BPCL for taking equity stake in Bharat Oman Refinery Ltd (Borl - the company executing the Bina refinery project).

Of the six million ton products Bina refinery will produce annually, HPCL has indicated a requirement of 1.4-1.6 million ton of petrol, diesel, LPG and kerosene for marketing in Madhya Pradesh. Of the 6 mt products Bina refinery will produce annually, HPCL has indicated a need of 1.4-1.6 mt of petrol, diesel, LPG and kerosene for MP Product slate is being revised to produce more of LPG and based on the revised product configuration, HPCL and BPCL will arrive at a producing sharing agreement.

German Firm to Complete Essar Oil's Refinery
Germany-based UHDE has replaced ABB Lummus as the EPC contractor for Essar Oil’s 12mn tons per annum refinery project at Vadinar in Gujarat.

Earlier this month, Essar Oil had called off its proposed equity private placement deal with ABB Lummus through the foreign currency convertible bond (FCCB) route.

According to Essar Oil, the deal with UHDE would be finalized in consultation with the lenders in line with the approval of the corporate debt restructuring (CDR) panel.

According to reports, ABB Lummus would continue to be associated with the Vadinar project till the overall engineering contract work is handed over to UHDE.

Chennai Petro Completes Expansion of Manali Refinery
Chennai Petroleum Corporation Ltd. said on March 31 that the 3mn metric tons per annum (MMTPA) expansion cum modernization project of its Manali refinery has been commissioned and has started commercial operations.

The once through cracker unit and other associated facilities which are also part of the project are expected to be completed and commissioned by June 2004, said Chennai Petroleum Corporation.

The project would be completed within the approved cost and no cost overrun is envisaged, it added.

JAPAN

Japan to Invest $627 Million for Desulfurization Facility
Japan's major oil distributors are preparing to market environmentally friendly low-sulfur gasoline and diesel fuel in compliance with new government rules.

Cheaper imported gasoline products will be available in Japan after tariffs are abolished in 2006.

As a result Japanese distributors such as Nippon Oil and Japan Energy will have to compete with imported low-sulfur gasoline, the Nihon Keizai Shimbun reported March 22.

All five major Japanese oil distributors, including Idemitsu Kosan, Cosmo Oil and Showa Shell, are expected to invest a total of $627 million to build desulphurization facilities and high-power catalysts at existing oil refineries.

The Ministry of Economy, Trade and Industry has promised to pay subsidies to oil companies that implement the new rules before they are enforced in 2007, for diesel, and 2008, for gasoline.

PAKISTAN

US to Set up $85m Refinery in Karachi
American investors are interested in setting up an oil refinery in Karachi at an estimated cost of $85 million.

This was disclosed at a joint meeting of Pak-American Business Association with senior officials of the Board of Investment (BoI) March 26, said a statement issued by BoI here.

James Gilmore-III, former Governor of Virginia, was heading the 12-member PABA delegation.

The delegation informed the BoI officials that OPIC and Exim Bank have shown interest in funding an oil refinery project, namely Indus Refinery in Karachi for which 200 acres of land has already been identified at Port Qasim.

They further informed the BoI officials that Americans are interested in establishing a paraxylene plant, CNG stations and shipping lines in the country.

The delegation said they are negotiating with the Pakistan Navy the possibility of joint ventures in the construction of a small shipping yard near Korangi.

Waseem Haqqie, chairman of BoI, told the delegation that the strategic location of Pakistan with land route access to the Middle East and Central Asian Republics offers a huge market to investors.

Mr Haqqie informed the delegation that multinational companies in Pakistan are doing immense business because of rapid improvement in the economy in the last three years.

SINGAPORE

BP Sells Singapore Refining Assets for $140m
British Petroleum Plc is selling its refining assets in Singapore to a local partner for $140 million as the oil major continues to sell down non-strategic assets to focus on China and Indonesia in Asia.

The announcement of BP’s plan to sell the assets to Singapore Petroleum Co Ltd. followed the $2.4 billion sale of its shares in Chinese oil giants, PetroChina and Sinopec Corp, as BP concentrates on petrochemical and retail expansion in China.

BP has long tried to sell the refining assets in Singapore. Like ExxonMobil Corp and Royal Dutch/Shell, it has been selling down its non-strategic assets across the globe as it shifts its focus to returns from production growth.

BP is still selling its 240 petrol stations in Malaysia and 30 outlets in Singapore. Singapore Petroleum has said it was keen to buy BP’s stations in Malaysia.

“It does not come as a surprise because BP has been divesting in a lot of areas and the refining asset sale seems a logical choice,” said Hassaan Vahidy, lead analyst for energy consultants FACTS Inc.

Although refining margins have recovered strongly in Asia, analysts say the outlook remain volatile due to surplus capacity, particularly in Singapore, the Philippines and Australia. “That’s exactly why we continue to see new refineries coming up in India, while there are closures in Australia and Singapore,” Mr Vahidy said.

Integrated oil company: For Singapore Petroleum, the acquisition fits its strategy to become a regional integrated oil company. It recently acquired a stake in a pipeline carrying gas from Indonesia from Singapore.

Singapore Petroleum, a unit of Keppel Corp, would acquire BP Singapore Pte Ltd’s one-third equity interest in Singapore Refining Company Pte Ltd and also its one-sixth equity interest in Tanker Mooring Services Company Pte Ltd.

Singapore Refining, in which Singapore Petroleum already owns 40 percent, operates a refinery on Jurong Island, off western Singapore, with a nameplate capacity of 285,000 barrels per day. Caltex, a unit of U.S. major oil company ChevronTexaco Corp owns the rest.

The acquisition will be funded by cash and will be completed by June.

BP’s refining and retail operations in Asia are not as big as Shell and ExxonMobil, bankers said. BP is also focusing on exploration and production in Russia and Indonesia, bankers said.

BP is preparing to spend up to an extra $5 billion in Russia over the next decade, industry sources say. “BP does not have a material downstream operations in Asia. It is not surprising they are trimming it back a bit,” one banker said.

$2.2 Billion Investment in Sri Lanka
China Petroleum, Asia's largest refiner, will go ahead with the construction of a $2.2 billion refinery and power plant in southeastern Sri Lanka, Jiang Han, a Beijing-based project manager, said last month.

``We like the location of Sri Lanka because we want to target the fast-growing South Asian market.'' Jiang said in an interview.

The investment by Beijing-based Sinopec, as the company is known, will be the biggest yet in Sri Lanka by an overseas company. The refinery and power plant will produce oil and electricity for markets including India and Pakistan, Jiang said.

Refinery Output in the 15 EU Countries Grew by 1.1% in February European refinery production rose 1.1 percent in February from the previous month as companies boosted gasoline output ahead of its peak summer demand season, Reuters reported.

Figures from industry monitors Euroilstock indicated that total refinery output in the 15 European Union (EU) countries plus Norway grew by 147,000 barrels per day (bpd) to 13.29 million bpd. Production was also up 2.9 percent on the same month last year.

The biggest gain was in gasoline output, which rose 83,000 bpd or 2.5 percent from January to 3.45 million bpd in February, as refiners took advantage of high prices for the motor fuel amid strong global demand.

Tatarstan to Annually Process 14 mln Tons of Oil by 2008.
Tatarstan's Nizhnekamsk industrial companies will process 14 mln tons of oil by 2008, according to the Message of Tatarstan's president to the State Council of Tatarstan.

Currently, Tatarstan's refining industry is represented by a basic complex - Nizhnekamsk Refinery which processed 6.7 mln tons of oil in 2003, 20.7% up on year.

Why Refineries' Sale is Delayed, By BPE
The Bureau of Public Enterprises (BPE) said that the plan to privatize the nation's four refineries was still on course not withstanding the seeming delays in the process, which commenced in October last year.

Director-General of BPE, Dr. Julius Bala, said the partial delay was to enable government held discussions with oil majors operating in the country with the view to getting them take up some stake in the refineries located in Port Harcourt, Kaduna and Warri.

The Federal Government had last October commenced the privatization of the four refineries with the appointment of Credit Suisse First Boston, a reputable American investment bank as Financial Advisers to the transaction.

This was sequel to a directive by President Olusegun Obasanjo that at least one of the four refineries be sold last year ending. The BPE could however, not comply with this directive, due to procedural and operational constraints.

Last January BPE closed the period for expression of interest (EOI) after which 34 companies indicated interest to acquire 51 per cent equity in the refineries being offered to a strategic/core investor.

But rather than evaluate the applications and pre-qualify the companies to go into the next stage of technical and financial bid as the privatization process provides, BPE, it was learnt, initiated discussions with the oil majors on behalf of the Federal Government since they did not show interest in the transaction.

Bala explained that "What government is doing is trying to make sure that another window of opportunities is opened. Government wanted to create opportunity and we have these oil majors operating in Nigeria so why is it not possible to get them?" Bala asked adding, "There has been a long standing position to integrate the oil majors in upstream and downstream segments of the country's oil industry."

He disclosed that "fruitful deliberations" have been held with the oil companies and that the result of the discussions will soon be made public together with the pre-qualification report of the 34 companies all in one basket. He did not however say exactly when the refineries will be sold.

Bala dismissed insinuations that the discussions with the oil majors arose because the 34 companies which showed interest in the refineries did not have the requisite experience to acquire controlling shares in the plants.

"It is not true that there is no company with the requisite experience. There are quite a number of them that are refiners. There are a number of them that are oil traders," Bala added.

He also disclosed that BPE had concluded negotiations to offer for sale the Federal Government's equity of 72.66 per cent in the West African Refinery Company Limited in Freetown, Sierra Leonne at the cost of $363,300 to Messrs. Majestic Oil (SL) Ltd. who were the sole bidders in the offer.

He said bids for the refinery were opened February 18 with an initial offer of $290, 640 made by Majestic Oil but further negotiations made the bidders push up the price to $363,300.

He said the preferred bidder had also accepted to settle all verifiable debts of WARCO, adding that the BPE had convinced Oando Nigeria Plc which also has stake in the refinery to cancel 50 per cent of the indebtedness.

4 New Refineries in Algeria Get Fed Govt’s Nod
Four more private refineries may have received the Federal Government’s blessings to come on stream as part of efforts to strengthen the deregulation of the downstream oil sector and ensure all-year round availability of petroleum products.

The refineries’ approval came as major marketers and the Petroleum Products Pricing Regulatory Agency (PPPRA) met in Abuja March 30, on adjustments in fuel pump price to reflect global market trend.

This is coming as the Nigerian National Petroleum Corporation (NNPC) Group Managing Director, Mr. Funso Kupolokun, on the weekend, warned major marketers against moving away from fuel importation.

Although the names of the companies are still being kept secret, the Special Adviser on Petroleum and Energy, Dr. Edmund Daukoru, said Orient Petroleum was one of those that passed the technical hurdles to move to the next stage of construction.

Earlier in the year, the government had given approval for the first four refineries to move to the construction stage after they passed all the technical hurdles.

With this, the number of private refinery operators has risen to eight out of the eighteen companies given licenses, eighteen months ago.

With the saying crude oil price in the international market, PPPRA and major oil marketers, namely, Oando, Conoil, Total, Texaco and African Petroleum (AP) chief executives are to meet in Abuja.

PPPRA sources explained that the meeting’s agenda would be to review the current crude oil price trend as it affects fuel importation, concession for importers as well as price adjustment in line with the deregulation policy.

A PPPRA official told the DAILY TIMES recently that the major hurdle which the agency is facing has been the recent court order which barred it from further price adjustment.

“This is our major problem. Nigerians are really mixing fuel tax issue with normal price trend. In, any deregulated market, prices do go up and down, a reflection of what is happening in the international market,” he said.

The source, however, said the agency would still go on with its responsibility which is to monitor and respond to market situation in the spirit of deregulation.

Shell, BP Tap Fluor for South Africa Refinery's Clean Fuels Project South African Petroleum Refineries (Pty) Ltd. (SAPREF), a joint venture of Shell SA Energy and BP Southern Africa, has selected Fluor Corp., Aliso Viejo, Calif., to provide engineering, design, procurement, and construction management services for a clean fuels project at its SAPREF crude oil refinery in Durban, South Africa, the largest crude oil refinery in South Africa.

The SAPREF LION (large increase in octane number) project will produce fuel with no lead and a reduced sulfur content to meet South African requirements by Jan. 1, 2006.

Fluor's services include project management, basic and detailed engineering, procurement, construction management, and commissioning.

IRAQ

LUKoil to Begin Oil Products Supply to Iraq
Russia’s oil giant LUKoil on April 1 embarks on supplying petrol and diesel fuel to northern provinces of Iraq.

Spokesman for the Russian concern Dmitry Dolgov said, “The oil products will be mainly delivered from the LUKoil-owned oil refineries in Volgograd and possibly from those in the Bulgarian city of Burgas.” In addition, part of the fuel is planned to be purchased at a free market in Europe.

The three-month contract signed between the U.S. Refinery Associated of Texas and 100-percent LUKoil’s daughter company LITASCO envisages the delivery of petrol in the amount of 180,000 tons and diesel fuel – 130,000 tons.

LITASCO President Valery Golovushkin told Itar-Tass, “The contract may be prolonged for nine months.” According to him, “this decision will depend on the entire complex of fulfilment of the contract terms, in particular, observance of the delivery schedule, quality of fuel and other factors.”

Golovushkin also said the “prices on fuel will change depending on world quotations.”

Israeli Oil Refineries to Remain in One Piece
The government has abandoned its plan to split and sell the Oil Refineries (BAZAN). Minister of Infrastructure Joseph Paritzky issued a surprising statement against the split, despite his previous opinion of several months ago maintaining that the split would encourage competition in the Israeli fuel industry. Finance Minister Benjamin Netanyahu told the Knesset Finance Committee several days ago that, “the split of the refineries might not be worth it and it might be better to let it remain a monopoly”.

The Israel Corporation, which holds 26% of the Oil Refineries’ shares, opposed the split. Its agreement with the government allows the corporation to sell its stocks to the State, which it said it would do. Paritzky's change of opinion stems from his opposition to paying the Israel Corporation $130 million for its shares in the refineries.

Furthermore, Paritzky maintains that the Ashdod refinery would have trouble competing with the Haifa plant, which is considered more profitable. “The whole point of the privatization was to encourage competition in the fuel industry. However, once the two plants do not have the same foundation, the whole issue becomes questionable. The split would cause the government significant loses, since the value of the refineries separately is lower than their value as one company”, said Paritzky.

In 1999, the government decided to split the refineries and sell them as two separate companies. The Treasury appointed a team, headed by Director General Yossi Bachar, to review the refineries’ privatization and to introduce changes into the agreement with the Israel Corporation.

Should it be decided to keep the refineries as one company, the Treasury will likely sell them to a private investor or issue their stocks on the exchange. In any case, the Israel Corporation would be the main winner, since it has the right to veto purchases of government’s shares in the refineries.

BP Sees No Supply Cuts From Kwinana Refinery Shutdown U.K.-based BP PLC (BP) said that it doesn't expect any supply disruptions from its Kwinana oil refinery in Western Australia State as a result of a partial shutdown due late April.

BP Sees No Supply Cuts From Kwinana Refinery Shutdown
U.K.-based BP PLC (BP) said that it doesn't expect any supply disruptions from its Kwinana oil refinery in Western Australia State as a result of a partial shutdown due late April.