Corrected/Update - Shell refining asset disposal

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Corrected/Update - Shell refining asset disposal - 7/29/2010 6:21:37 PM

Charlie Randall

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CORRECTED / UPDATE 1-Shell: refining asset disposal medium-term target

* Shell Q2 downstream returns to profit, still cautious
* Refinery sales in Europe talks slow down
(Corrects throughout to show that Shell had set a target of 2-3 years, not 2010)
By Ikuko Kurahone
LONDON, July 29, 2010 - Royal Dutch Shell <RDSa.L> will need two to three years to dispose some of its global oil refining assets, a senior executive said on Thursday.
Many oil companies have put their refineries up for sale, especially in Europe, since last year. Chinese and Indian companies have been interested in buying them, but persistently weak margins have slowed down talks.
Shell plans to reduce about 15 percent of its global refining capacity. Some of its plants, such as Heide and Harburg in Germany and Stanlow in the UK, have been put up for sale.
Simon Henry, Shell's chief financial officer, told a news briefing for company's the second-quarter earnings that it was "a medium-term target". "It will be the next couple of years we need to get the 15 percent down," Henry said.
"If we cannot divest we will close or convert them to a terminal. We will take the capacity out of our system in one way or another."
Shell's presentaion material showed $7-$8 billion divestment for 2010-2011 but it did not specify the assets.
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Oil companies have been hit by the sharp fall in fuel demand in developed countries, especially in Europe, due to the economic downturn, which slashed margins to below break even levels last year from the peak in the first half of 2008.
Refining margins have recovered moderately this year and Shell's downstream operations returned to a profit of $1.471 billion in the second quarter from a loss of $275 million in the same quarter last year.
Still, Shell said its downstream business would not make significant profits. BP, which posted a jump in its second quarter downstream profit, also cautioned margins might fall in the current third quarter.
Majors prefer to sell assets over permanent closure to make some cash and avoid job losses. Shell has made a final attempt to sell its Montreal refinery in Canada.
Some Asian oil companies see European refineries as strategic to expand their global business.
But none of the refineries, which have been offered and which were intended to be sold earlier this year, has finalised a deal. One UK refinery has been forced to close and became a terminal, after failing to find a buyer.
Shell said some of its European refinery sales have still been negotiated and India's Essar said it was talks to acquire three of Shell's European refineries.
Initially, industry sources had said Essar might buy them in May or June.
PetroChina has been in talks to buy the Grangemouth refinery from Ineos. Sources had said the deal might be reached early in 2010.
(Reporting by Ikuko Kurahone and Tom Bergin; Editing by William Hardy)

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Charles E. Randall
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