Los Angeles Times
Shell Oil Co. said Wednesday that talks with the leading bidder for its Bakersfield refinery broke down, reviving the prospect that the plant could shut down next spring and pinch the state’s tight gasoline market.
The two sides “could not reach an agreement that offered terms and conditions acceptable to both parties,” Lynn Laverty Elsenhans, president of Shell Oil Products US in Houston, said in a statement. If another bidder doesn’t offer “an acceptable package, she said, “we will proceed with plans to close the refinery” in March.
Shell last week said it was negotiating exclusively with one suitor, which sources identified as the private investment firm Kelso & Co. in New York.
Shell spokesman Stan Mays declined to say why the talks collapsed or whether Kelso remained interested. Kelso’s general counsel, James Connors, declined to comment.
The Bakersfield refinery produces 2% of California’s gasoline and 6% of itsdiesel fuel. Shell‘s plan to shutter it alarmed California Atty. Gen. Bill Lockyer, politicians and consumer advocates who feared that the closure would leave California short of gasoline supplies and raise pump prices.
Under pressure, Shell agreed earlier this year to attempt to arrange a sale that would keep the 500-acre, 72-year-old plant open. A few potential buyers other than Kelso expressed interest.
“We’re going to go back to the other final bidders and gauge their interest… and see if it’s possible to negotiate a sale,” Mays said.
Critics contend that Shell is a reluctant seller because it has made clear its desire to keep ownership of certain storage tanks and other assets integral to running the refinery and leasing those assets back to the new owner.
That makes the property less attractive to bidders, said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica.
“Shell is acting like someone who’s selling their house but refusing to sell the garage that goes with it,” he said. “It’s incumbent on the attorney general to demand that Shell live by reasonable terms.”
Lockyer spokesman Tom Dresslar said Lockyer’s office was “going to review the circumstances that led to this apparent failure of the negotiations.”
Shell “committed to making a good-faith effort to complete a sale,” Dresslar said, “and the attorney general intends to hold them to that promise.”
Two other potential buyers were Flying J Inc., a privately held oil company based in Ogden, Utah, and Paramount Petroleum Corp., a Paramount firm that mainly refines oil into asphalt.
Executives with the two companies didn’t respond to requests for comment Wednesday. Last week they said they remained interested, especially if the talks with Kelso faltered.
Shell, the U.S. unit of the Anglo-Dutch oil giant Royal Dutch/Shell Group, said it wanted to close the refinery because of dwindling supplies of crude oil in the San Joaquin Valley.
The company also cited the refinery’s age and that it wasn’t profitable enough. It employs 250 people and can process 70,000 barrels of crude oil a day.
Critics asserted that Shell‘s motive was to drive up pump prices and profit at Shell‘s two larger California refineries in Martinez and Wilmington.
In July, the Federal Trade Commission said it was investigating whether Shell‘s plan to close the Bakersfield refinery would violate antitrust laws by reducing competition.
If the plant closes in March, it could add to what is already a volatile period in California’s gasoline market.
That’s when refiners switch to summer blends of gas that are more difficult to produce. The result can be supply snags and higher prices.
