* Pulls out of plans to build 400,000 bpd plant
* Cites strategy to reduce downstream operations
* Conoco shares down almost 1 percent
* Aramco talking to other potential partners-sources
(Recasts, adds background, bylines)
By Anna Driver and Simon Webb
HOUSTON/DUBAI, April 21 ConocoPhillips (COP.N),
the third-largest U.S. oil company, said on Wednesday it
canceled plans to build a new plant with Saudi Aramco in the
Middle East, citing its strategy to reduce its refinery
The refinery was to be built by the two oil companies in
Yanbu Industrial City, Saudi Arabia, and have a processing
capacity of 400,000 barrels per day. Yanbu accounts for just
under a quarter of Saudi plans to add around 1.7 million
barrels per day of refining capacity.
Conoco, like other major oil refiners, has seen profits
shrink at its plants that turn crude oil into gasoline and
diesel fuel as the global economic slowdown eroded demand.
"We ultimately decided this project was not consistent with
our current strategy to reduce our downstream footprint,"
Willie Chiang, senior vice president for refining, marketing
and transportation, said in a statement.
Aramco indicated it would go ahead with the plant despite
Conoco's withdrawal. [nLDE63K1Q7]
"We anticipate that the Yanbu refinery will become one of
the most competitive refineries in the world," Khalid
al-Buainain, senior vice president of refining and marketing,
said in an Aramco statement.
Aramco is already talking to other potential partners to
replace Conoco, and at least one Chinese firm is among those
Aramco has approached, industry sources said. [ID:nLDE63K20V]
The complex Yanbu refinery is slated to process heavy crude
from Saudi Arabia's project to pump 900,000 barrels per day
from the Moneefa oilfield, a sister project to another
400,000-bpd refinery that Aramco is building with France's
Total (TOTF.PA) at Jubail.
Last week, Conoco sold its stake in a Canadian oil sands
project to China's Sinopec (600028.SS) for $4.65 billion as
part of its program to sell $10 billion in assets to help
reduce its heavy debt burden and improve shareholder returns.
"Conoco is looking to make upstream 85 percent of their
business, so it certainly makes sense that they would cancel
this project," said oil analyst Phil Weiss of Argus Research.
Conoco has yet to decide on its role in another giant
development in the Gulf, a $10 billion project to pump and
process sour gas from the Shah field in the United Arab
That project may also be pulled, Weiss said, because it
will not yield the type of returns Conoco is seeking as it
invests more heavily to expand its exploration business.
Aramco's plans to nearly double refining capacity at home
have also been hit by the global economic downturn. A project
to boost capacity by 400,000 bpd at Aramco's Ras Tanura's
refinery may be shelved indefinitely after the company put the
project on hold last year.
Industry sources told Reuters last week that Aramco and
Conoco had planned to contract with South Korea's SK
Engineering [SKEC.UL] to build a crude unit, Daelim Industrial
00210.KS for a gasoline unit, and GS Engineering (006360.KS)
to build a hydrocracker.
Spain's Tecnicas Reunidas (TRE.MC) would build a coking
unit and India's Punj Lloyd (PUJL.BO) oil storage units,
according to the sources. [ID:nLDE63C1BW]
Yanbu is not the first refinery project that Conoco has
pulled out of in the region.
The Houston company withdrew in 2007 from a partnership
with Abu Dhabi's government-run International Petroleum
Investment Corp to build a refinery at the port of Fujairah in
the United Arab Emirates as inflation throughout the industry
drove costs higher.
Shares of Conoco fell 48 cents, or nearly 1 percent, to
$56.92 in morning trading on the New York Stock Exchange.
(Reporting by Reem Shamseddine in Khobar, Matt Daily in New
York and Simon Webb in Dubai and Anna Driver in Houston,
editing by Lisa Von Ahn and Derek Caney)