Valero may sell U.S. plants in hard refinery times

By Bernie Woodall and Rebekah Kebede

SAN DIEGO (Reuters) - Top U.S. refining company Valero Energy Corp (VLO.N) said on Tuesday it is considering selling nearly a third of its North American refineries amid a U.S. economic slowdown that is crimping fuel demand, and that it is exploring new projects in the Middle East and Asia.

The outlook marks a major shift in Valero's strategy after a decade of sterling profits, acquisitions and expansions transformed the San Antonio-based company from small independent refiner into a behemoth.

Valero Chief Executive Bill Klesse, speaking at the National Petrochemical and Refiners Association meeting, said the company is close to selling refineries in Aruba, Memphis, Tennessee, and Krotz Springs, Louisiana, and has received interest from potential buyers for two other plants.

Klesse did not say what companies were vying for the plants, which account for 840,000 barrels per day of the company's 3.1 million bpd capacity.

But Zurich-listed Petroplus PPHH.VX announced in late February it partnered with two private equity firms to buy U.S. refineries, raising some speculation in the oil industry that it could be one of the bidders.

Brazilian state oil company Petrobras (PETR4.SA)(PBR.N) has also said it is eyeing opportunities to buy refineries.

Klesse said that at the same time, Valero is exploring potential growth in the Middle East and Asia, where demand for fuel has been robust.

"We have looked in the last six months at opportunities in the Middle East and we looked at a situation in Asia," said Klesse. "Nothing is imminent."

Subsidized prices and a weakening U.S. dollar have helped keep fuel demand high in many consuming nations, he said.

U.S. 'GOLDEN AGE' OVER

After a stretch of soaring profits that Valero once dubbed "the golden age" of refining, the sector in the United States has faced a sharp downturn.

Surging crude oil prices, softening demand growth, tough environmental regulations and rising costs for materials and labor have cut into margins and led U.S. refiners to slow fuel production and scrap more than a half a million barrels per day in expansion plans in recent months.

Klesse said he expects prices of crude oil, the primary feedstock in fuel production, to continue to hold strong despite weaker U.S. demand growth for gasoline. Crude oil hit a new peak near $110 a barrel on Tuesday. <O/R>

He added that poor margins, particularly in the Midwest, had led the company to slow some gasoline production even as pump prices hit new peaks.

"Oil prices are going to stay high," Klesse said. "I'd like to think not $110. The world economy has shown it can handle these high prices."