Refining Exodus: Chevron to Slash Jobs, Exit Some Markets in Restructuring

Last Updated Jan 19, 2010 6:51 PM EST

Chevron plans to restructure its refinery and marketing operations, exit some markets and cut jobs -- which should not surprise anyone who has watched and listened to the super major over the past year. The company's refining business -- along with other U.S. refiners -- have struggled throughout 2009, its 2010 capital budget will scale back spending in its downstream segment by $900 million and it announced last month plans to withdraw its motor fuel operations in some areas of the Eastern United States.

Consider this latest announcement the official end to hints and the beginning of a smaller energy company focused on exploration and production. It will also be the first big task of its new Chairman and CEO John Watson, who took over the top spot from David O'Reilly this month. The transition to new leadership most likely prevented Chevron from taking restructuring steps sooner than it did.

There are few details of the restructuring, which were initially shared Monday in a video message to Chevron employees, according to the Houston Chronicle. The second-largest U.S. energy company is expected to review its entire downstream operations -- which makes, transports and sells refined products like gas and diesel fuel -- and share more detailed information about its restructuring plans in March.

The company obviously has to do something about its refining sector. The recession sapped demand for transportation fuels and more refiners came on line in recent years, which has led to an overload of refining capacity in the world and to weak margins. In short, its hard to make a buck refining and selling fuel products. And then there is the prospect of climate-change legislation, which would be problematic for the refining industry, as FT's Energy Source noted.

Chevron's downstream business employs 19,000 people worldwide and its refineries are concentrated in North America, Western Europe, South Africa and the Asia-Pacific rim. The company has focused on two growth areas in its downstream segment: the West Coast of the U.S. and the Pacific, where its five core refineries -- in Singapore, Thailand, South Korea and Richmond and El Segundo, Calif. -- also happen to be located. It seems unlikely the company would rid itself of refineries in Asia, its biggest potential growth market. Which leaves refineries in Pascagoula, Mississippi; Pembroke, Wales; Hawaii; and Salt Lake City among those on the chopping block. The future of the Richmond, Calif. is questionable as well, given a lawsuit filed last year put the company's plans to complete a major retrofit of the refinery on hold. The retrofit would have allowed it to precess a larger variety of crude oil.

There are plenty of other business contained within the downstream segment the energy company could parcel off, namely its marketing unit, which has more than 8,800 Chevron-branded service stations in the U.S.

Here is one issue that will crop up this year: a lot of other companies including ConocoPhillips also are trying to unload assets, which will only slow sales and put downward pressure on prices.

See additional BNET Energy coverage of Chevron: