UPDATE 1-Murphy Oil UK head to pursue buyout of refinery -source
* Murco head steps aside to compete with Greybull and Klesch
* Firm extends talks with employees on refinery shutdown (Adds details throughout)
By Ron Bousso and Simon Falush
LONDON, May 19 (Reuters) - The head of Murphy's Oil UK operations has stepped aside to pursue the acquisition of the company's ailing Milford Haven refinery and retail business, a source close to the company said on Monday.
Murco, Murphy's British subsidiary, has been engaged for months in talks with several parties on the sale of the 135,000 barrels-per-day refinery and its assets.
Murco Managing Director Tom McKinlay told employees on Friday he was taking a leave of absence. Brian Kelly, currently head of Murphy's business development in West Africa, the Middle East and Britain, will replace him and lead Murco's negotiations with the potential buyers, the source said.
"Tom McKinlay has taken a leave of absence because he is pursuing a management buyout in order to maintain integrity of process," the source said.
A Murco spokeswoman could not immediately be reached for comment.
A possible management buyout is the latest twist in Murphy's four year-long quest to sell its downstream assets in Britain.
The Milford Haven plant in Wales stopped purchasing crude oil last month and is in the process of reducing its operations as stockpiles are expected to run out by next week, a second source said.
After a plant is completely shut, restarting it typically becomes prohibitively expensive.
Besides McKinlay's interest, other potential bidders include private equity fund Greybull Capital and Swiss industrial group Klesch, the first source said.
McKinlay is in the process of trying to get the funding for a possible buyout, the first source said. Greybull was in advanced stages of talks with Murco in March to buy the plant and associated assets for around $500 million.
Last month, Murco started 45 days of consultation with employees and their representatives on the future of the loss-making refinery after it said talks had made no progress.
The consultation process was officially set to end in coming days but will continue until the outcome of the talks becomes clearer, the first source said.
European refiners have struggled with shrinking domestic demand and increased overseas competition, which has crushed margins, forced them to cut runs and led to losses. (Reporting by Ron Bousso and Simon Falush; Editing by Dmitry Zhdannikov and Jane Baird)
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