Shell Oil Focuses on 1 Bidder;

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The company is negotiating exclusively with an investment firm to sell its Bakersfield refinery, sources say.

Los Angeles Times

New York investment firm Kelso & Co. has emerged as the leading bidder for Shell Oil Co.’s Bakersfield refinery, people familiar with the situation said Thursday.

Kelso and others have been talking to Shell about buying the facility for several months, and Shell in the last week signed an agreement pledging to negotiate exclusively with the privately owned equity firm, the sources said.

It was unclear what price and terms were under discussion, though one person said Shell continued to insist on keeping ownership of a few assets — such as certain pipelines and a fuel-dispensing terminal — that are integral to operating the refinery.

Shell spokesman Stan Mays declined to comment on Kelso’s status.

“I can’t tell you who may or may not continue to be involved in discussions,” he said. “We continue to have discussions with a short list of bidders.”

Kelso executives didn’t return a call for comment late Thursday.

Shell‘s Bakersfield refinery, considered small by industry standards, is profitable and produces 2% of California’s daily gasoline needs and 6% of its diesel.

Late in 2003, Shell announced plans to close it by Oct. 1 of this year, alarming politicians and state officials who dreaded losing fuel production in a state already grappling with supply troubles.

Tom Dresslar, spokesman for Atty. Gen. Bill Lockyer, declined to confirm that Kelso had grabbed the inside track in the negotiations but said: “The continued operation of the Bakersfield refinery is extremely important to prevent further instability in California’s gasoline market. If a deal is struck that keeps the refinery running over the long term, that will be a major victory for the drivers of this state.”

Two other firms are known to have been on the short list of bidders for the Bakersfield facility: the refining subsidiary of Flying J Inc., an Ogden, Utah, company known best for its nationwide network of truck-fueling plazas; and Paramount Petroleum Corp., a company that makes asphalt and military fuel at a Southern California refinery.

Fred Greener, head of Flying J’s refining business, said it remained interested. As for Paramount, spokesman Bill Winters said the company “would have liked to make something work” with the Bakersfield refinery. “We have an offer on the table, but it did not meet their requirements. If things change, we’d still be interested.”

In September, Shell said it would keep the refinery open at least to the end of the year — and three months longer, to March 31, if it got clearance from the Environmental Protection Agency and the Justice Department on emissionsmatters. This week, Shell got that clearance and officially changed the closure date to the end of March.

“With the extra three months, we’re getting really close to popping the cork,” said Jamie Court, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “I think there are too many government eyes on this for it not to happen.”

Kelso was founded in 1971 by Louis O. Kelso, a lawyer who developed the concept of employee stock ownership plans in the 1950s. Since 1980, Kelso has invested in a broad range of companies with a combined value of $18 billion, according to the company’s website.

The firm considers itself something of a “white knight” investor that provides capital to distressed firms or to avert a hostile takeover. Among its holdings are a newspaper company, a metal distributor, a New Jersey fuel oil and natural gas distributor and Nortek Inc., a $1.5-billion maker of building products.

In June, Kelso agreed to a $200-million investment in Optigas Inc., a privately held Denver company that gathers, processes and sells natural gas.

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