Controversy Boils at Idled Refinery

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Some say Shell Oil is trying to use its leverage to put the plant it sold to Big West in 2005 out of business.

Shell Oil Co. is putting the squeeze on a financially troubled Bakersfield refinery it sold in 2005 to Big West Oil, which could lead to the closing of the operation and potentially higher gasoline prices for California motorists, according to consumer activists and a union representing plant workers.

Concern about the facility’s fate has been growing since Big West’s
parent — Flying J Inc. of Ogden, Utah — filed for Chapter 11
bankruptcy protection Dec. 22. The company shut down the Bakersfield
refinery soon afterward for what it said would be 10 days of routine
maintenance. But the plant has yet to come back on line, fueling
speculation that Flying J was having trouble securing credit from its
suppliers, including Shell, to keep the refinery running.

Thursday, Kevin Cable, committee chairman for the United Steelworkers,
singled out Shell as one of the main obstacles to the reopening of the
plant. In a memo to refinery workers, he said Shell was demanding
onerous payment terms from Big West to resume crude deliveries and that
it had closed pipelines to the facility, preventing shipments from
other suppliers.

"It appears that Shell is… trying to shut our plant down," the memo said.

Tim Kollatschny, a supply manager for Shell, confirmed that Shell had
closed a single pipeline to the Bakersfield refinery and suspended
crude deliveries while it negotiated with Big West. But he denied that
Shell was seeking unreasonable terms or that it had the power to shut
down the facility. Kollatschny said Big West had other means to get the
crude it needed and that Shell supplied "less than 20%" of the 50,000
to 60,000 barrels of crude processed there daily.

"That is only
a small portion of their needs, so it’s hard to understand how that
would be the culprit in having the refinery not run," he said.

Kollatschny said Shell was owed "tens of millions" of dollars by Big
West as part of the bankruptcy proceeding. He said talks were ongoing
and that Shell wanted to work out a deal to get the crude flowing
again. Consumer activists are skeptical. Shell is the former owner of
the Bakersfield refinery. The Houston-based company touched a nerve in
2003 when it announced it was going to close the facility, which
supplies about 2% of California’s gasoline and 6% of its diesel.

Although that doesn’t sound like much, it can still affect prices
because supplies in the state are perpetually tight. State officials
pressured Shell hard to sell the refinery to independent Big West as a
way to boost competition and protect consumers.

The Santa
Monica activist group Consumer Watchdog on Thursday sent letters to
Sen. Barbara Boxer (D-San Francisco), California Atty. Gen. Jerry Brown
and Treasurer Bill Lockyer asking them to investigate whether Shell or
any other major oil companies were using their financial leverage over
Big West to keep the firm from reopening the plant.

Boxer responded late Thursday with her own letter to Brown, urging him to look into the allegations.

"Shell Oil may be deliberately manipulating the supply in order to
force the refinery to shut down," the letter said. "Californians can’t
afford high gas prices stemming from refinery closures."

J spokesman Peter Hill declined to comment on Big West’s relationship
with Shell. "Routine maintenance at the Bakersfield refinery is
ongoing, and there are limited operations taking place," he said.

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Consumer Watchdog
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