Shell Documents Give You Ability To Keep Bakersfield Refinery Open

April 6, 2004

Honorable Bill Lockyer
California Attorney General
1300 I Street #1730
Sacramento, CA 94244-2550

Dear Attorney General Lockyer:

Californians are paying the highest prices for gasoline in the nation, up to 50 cents per gallon more than most other regions. All honest witnesses will acknowledge that the gasoline spikes are not a result of OPEC crude prices or environmental standards, as the oil industry claims, but low inventories and restricted refining capacity maintained by the five oil refiners that control 90% of California’s special CARB fuel.

Given this restriction of supply, it’s shocking that Shell would announce the closure of yet another refiner responsible for 2% of the state’s gasoline supply. That would bring the number of refineries in California making CARB fuel to 12, from 37 in 1983, despite a burgeoning population. Everyone seems to be aware that local refineries can barely meet our needs for CARB gasoline and the lack of refining capacity is recognized as a major factor in the higher pump prices. Closing yet another refinery would undoubtedly cause prices to rise even further.

This market obviously functions like no other. If there were a computer shortage, would any computer maker close computer factories? At last, we believe there is an opportunity for you to act under the state’s Unfair Business Competition Law to stop Shell‘s plan to demolish its refinery and to prevent gasoline prices from spiking once again.

When Shell Oil announced its intentions to close its refinery in Bakersfield by October of 2004, the company blamed poor profitability and a declining crude supply in the San Juaquin Valley. Shell stated in its press release that the refinery’s continued operation is “no longer economically viable” because “there is simply no longer an adequate supply of crude oil to justify the continued operation of this facility.” The Seattle Times also reported on March 6th: “Shell will close the plant because it was unprofitable and didn’t receive enough oil from the area to keep operating, said James Frazier, a company spokesman.”

New evidence obtained by the Foundation for Taxpayer and Consumer Rights (FTCR) shows Shell has deceived the public with these statements and that it intends to demolish the refinery to keep gasoline off the market, and the price of gasoline high, rather than sell the refinery. This should constitute an unfair business practice and form the basis for an Unfair Business Competition Law case against Shell that seeks an injunction forcing Shell to sell the refinery for more than the cost of demolition or to keep the refinery running.

Shell has admitted to the media and its own employees that it has not sought to sell the refinery. That’s confirmed by internal documents showing a timetable to decommission and demolish the Bakersfield refinery beginning with shutdown in mid-September. The company implied no other oil company would want the refinery as it is unprofitable and any buyer would face the crude shortage.

Since Shell‘s announcement, industry observers, local crude producers, and analysts at the California Department of Conservation, Division of Oil, Gas and Geothermal Resources have questioned the notion that the Bakersfield refinery could run out of crude. They have pointed out how California is ranked 3rd behind Alaska and Texas for size of crude oil reserves and ranks 4th amongst the states in crude production. FTCR is now convinced a 20 year supply of local crude is available for processing at Bakersfield.

Regarding Shell‘s claims that the Bakersfield refinery is not profitable, internal Shell documents now in our possession and available for viewing on our website contradict these statements. Click here to view the internal documents. The April 5th “Alliance Refining Update” document shows that Bakersfield has the biggest margins of any Shell refinery in the nation — or $23.01 per barrel, about 55 cents profit per gallon. That means, for example, that margins are 36 cents per gallon higher in Bakersfield than in Port Arthur Texas. The internal Shell document comments under the category of refinery margins, “Wow.”

A Shell Power Point Presentation “People, Planet, Results February 2004 Shell Bakersfield Refinery” again disproves the claim Bakersfield is not profitable as the company displays positive net earnings for 5 out of the last 7 years.

The end-of-2003 memo from Shell manager Jeff Krafve to fellow refinery employees says it all: “[W]e turned in excellent operational performance this year. We are the most reliable US Shell refinery in 2003, and achieved world-class performance two years in row now. We have made quantum step improvements in our environmental compliance, finishing well under target again for the second straight year. We have reduced the expense we control 15+% year over year, and have been one of the few Shell U.S. refineries to turn a profit. We’ve done this with the lowest personnel index in Shell refining in the country, making us comparatively the most productive and effective workforce in the system.”

Owning a refinery with this type of profitability located in the largest gasoline market of the in the world, why wouldn’t Shell offer to sell the refinery rather than close it? Interviews of workers at the refinery provide the answers.

Refinery workers in Bakersfield told FTCR that Aamir Farid, General Manager of Shell‘s refinery, stated to hundreds of employees at an employee meeting that the company would never sell the refinery because it did not want the competition. This suggests the real motivation for the company to close the refinery is to insure its production does not stay on line and to further decrease competition for the company’s remaining two refineries in California.

Even more alarming are reports from insiders at the refinery that the company is currently negotiating contracts with vendors to ensure the decommissioning and demolition process begins nearly immediately following the shutdown in mid-September.

If the Bakersfield refinery is closed, Californians will undoubtedly suffer even greater economic harm at the pump due to the loss of treasured refining capacity for our unique blend of CARB gasoline and diesel fuel. Both the loss of CARB fuel refining capacity and the damage to competition will be nearly impossible for the state of California to reverse in the future.

The Unfair Business Competition Law provides the Office of Attorney General and any member of the general public the opportunity to stop Shell from closing the refinery as an anti-competitive practice. We hope your office will prosecute this case and FTCR is prepared to offer its help. If you chose not to file suit, FTCR would contemplate bringing the case itself. As the bulldozers are apparently on their way to Bakersfield, time is of the essence.

Sincerely,

Jamie Court – President (FTCR)
Tim Hamilton – Petroleum Consultant