After years of downsizing, refining still matters for majors

Wed Apr 16, 2014 11:59am EDT
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By Dmitry Zhdannikov

LONDON (Reuters) - When U.S. firm ConocoPhillips (COP.N: Quote) spun off its refining assets in 2011 to focus on more profitable oil production, it seemed only a matter of time before one of the oil majors followed suit.

Three years on, the six vertically integrated global majors are still holding onto their often loss-making plants, seen as a drag by investors.

They cut oil processing rates, sell individual plants, shift exposure from region to region, but have yet to follow Conoco's lead, hanging on instead to returns that are a shadow of the boom years of 2004-2007 but still worth having.

Conoco's downstream spinoff was part of a trend in the U.S. industry where a handful of mid-level companies split their upstream and downstream operations, including Hess (HES.N: Quote) and Marathon (MRO.N: Quote).

Europe's oil refining guru, Marcel van Poecke, believes the move will be repeated one day.

"Investors say: 'We don't need you to be an integrated company' ...They say: 'We can buy BP (BP.L: Quote) for upstream and Valero (VLO.N: Quote) for downstream. And we will create our own oil company'," Van Poecke, who runs a fund at private equity giant Carlyle (CG.O: Quote), said this month.

The head of the world's largest trading house Vitol, Ian Taylor also sees majors drastically reducing exposure to refining.

However, majors themselves say not many people realize how much scaling down has been already done in the past years.   Continued...

The ConocoPhillips oil refinery lights up a neighborhood in San Pedro, California March 24, 2012. Picture taken March 24, 2012. REUTERS/Bret Hartman