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New Obstacle to Refinery Deal

Shell is refusing to include key parts in the sale of its Bakersfield facility, sources say.

September 15, 2004|Elizabeth Douglass | Times Staff Writer

Several buyers are interested in Shell Oil Co.'s Bakersfield refinery, but an acquisition could be thwarted by the company's refusal to sell on-site storage tanks, pipelines and other key parts of the facility, according to people familiar with the situation.

Shell's reported stance is the latest obstacle to efforts by state officials to save the small refinery, which makes 2% of California's gasoline and 6% of its diesel. If the refinery is shut instead of sold, the lost production could spark increases in California's chronically high fuel prices, state officials said.

A spokesman for the oil company, Stan Mays, declined to be interviewed Tuesday, though he provided written answers to e-mailed questions.

Asked about the sale restrictions, Mays said: "I'm not aware that anyone at Shell has said this."

Shell first decided to shutter the refinery without trying to sell it and then, under pressure from state Atty. Gen. Bill Lockyer and others, earlier this year agreed to entertain offers. The company warned at the time that it intended to keep the refinery's crude oil contracts, reducing the pool of possible buyers to those that could secure a new source of oil for the landlocked facility.

Now, according to the people close to the negotiations with potential purchasers, Shell has put up the additional roadblocks. It has offered to lease the storage tanks and pipelines to a buyer but "at extraordinarily high rates," one source said.

This source called the situation "pretty much unprecedented in a refinery transaction."

What's more, potential buyers have only until the end of today to submit an offer for the refinery under deadlines set by Shell, according to several sources.

Shell declined to confirm the deadline.

Mays, the company spokesman, called the bidding process "robust" and said there were several prospective buyers. Because of confidentiality agreements, he said, "we cannot discuss any terms or conditions that may or may not be imposed."

Last month Lockyer won a commitment from Shell to postpone the refinery's closure date, originally Oct. 1, at least until the end of the year -- and possibly until the end of March -- to provide more time for negotiations with potential buyers.

The agreement was hailed as a victory for California motorists, as well as for farmers who worried that the planned fall closure would disrupt diesel fuel supplies during an important harvest season.

Tom Dresslar, a spokesman for Lockyer, said the attorney general's office "continues to monitor Shell's efforts to find a qualified buyer and complete a sales transaction." Shell, he added, "made a commitment to pursue that endeavor in good faith."

Dresslar declined to identify any of the companies eyeing the refinery. Speculation has swirled around several possible purchasers, including Holly Corp. and Flint Hills Resources, both small refining companies, and Rothschild Group, an international investment banking firm.

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, said Shell's latest restrictions were proof that the company never intended to sell the refinery and wanted it closed to further tighten fuel supplies in California.

Cutting supplies would trigger an increase in pump prices as well as profit at Shell's two larger California refineries, in Martinez and Wilmington, Court and others have maintained.

"It seems to me that Shell is again complicating a sale. It's like trying to sell a car without the gas tank," Court said. "Everything that's been done to keep this refinery open in the last six months is moot if Shell's not willing to make a sale real."

The Federal Trade Commission is investigating Shell's closure plan on antitrust grounds.

Shell, the U.S. unit of Anglo-Dutch company Royal Dutch/Shell Group, said it decided to close the Bakersfield refinery because of dwindling supplies of crude oil in the San Joaquin Valley.

In addition, the company said, the refinery is old, inefficient and not profitable enough.

An industry consultant hired by Lockyer, Malcolm Turner of Dallas-based Turner Mason & Co., studied the refinery's prospects and in a July interview with The Times said the decision to close it "flies in the face of common sense."

Turner continues to monitor the Shell negotiations on the state's behalf. He declined to comment Tuesday.

David Hackett, an industry consultant in Irvine, said that although sales deals "do get structured every which way," he had not encountered any with the restrictions attributed to the Bakersfield offering.

"I don't have a clue as to their logic," said Hackett, whose firm, Stillwater Associates, has done work for the California Energy Commission.

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