July 24, 2015 / 5:36 PM / in 4 years

Exclusive: Total seeks buyer for half of Texas refinery

NEW YORK/PARIS (Reuters) - French oil major Total S.A. is selling a 50 percent stake in its sole U.S. refinery in Port Arthur, Texas, and has retained investment bank Lazard to advise on the deal, according to a source familiar with the matter.

General view of the Total's oil refinery at La Mede near Marseille, southern France, April 16, 2015. REUTERS/Jean-Paul Pelissier

Total, which has been trying to reduce its downstream exposure for three years, intends to remain operator of the 225,000 barrels-per-day (bpd) plant, which it has owned for more than 40 years, the source said.

The move reflects the company’s efforts to shift more capital toward production, two people familiar with refining transactions added.

A Total spokesman later confirmed the group was studying the possibility of a tie-up with a long-term strategic partner to develop Port Arthur, like it has with its other non-European platforms in Saudi Arabia, Qatar and South Korea.

“It’s a high-quality asset which meets the market’s needs particularly well thanks to the large investments that were made recently,” the spokesman said.

Lazard declined to comment.

The sale would be the latest step by a big oil company to move away from the downstream sector, which has long been considered a low-margin drag on earnings.

More recently, however, U.S. refiners - particularly those along the Gulf Coast - are reaping near-record profits, with plants like Total’s soaking up low-cost Canadian oil sands crude and U.S. shale while exporting fuels to premium markets.

In June, Exxon Mobil Corp and Petroleos de Venezuela SA [PDVSA.UL] sold their 192,500 bpd Chalmette, Louisiana, plant to PBF Energy for $322 million, or about $1,672 per barrel.

At that measure, a 50-percent share of Total’s refinery would be worth $188 million, although other factors like location, complexity and legal risk will affect the price.

The proposed Port Arthur deal involves the refinery, of which Total owns 100 percent. The petrochemical part of the site is operated through a joint venture that is 60 percent owned by BASF, with Total owning the remaining 40 percent.

The two sources familiar with refining transactions suggested the refinery could fetch more than Chalmette on a per-barrel basis.

FOOTHOLD

Total’s intent to continue as the plant’s operator will provide a unique opportunity for an oil producer eager to establish a refining beachhead in the United States, according to the sources familiar with refining transactions.

They said potential bidders could include companies from Canada’s oil sands patch which are shipping growing volumes of heavy crude to the U.S. Gulf, like Cenovus Energy Inc, or those simply seeking a foothold in the world’s biggest fuel market, like PetroChina, which has explored potential North American refinery deals in the past.

PetroChina did not immediately reply to requests for comment. Cenovus spokesman Brett Harris declined to comment, citing a company policy.

Port Arthur is one of Total’s six integrated refining and petrochemical platforms around the world.

The Paris-based oil major has been trying to cut its exposure to refining since 2012, and plans to have reduced its European refining and petrochemical capacity by 20 percent by 2017. Its chief executive has said the industry is in a “crisis.”

But more than a third of Total’s refining capacity is in France, where labor laws and strong unions make it difficult to sell or close down capacity. The group announced a restructuring plan for its French refineries in April that will include capacity cuts at its La Mede refinery in Marseille and investments at Donges on the Atlantic coast.

Meanwhile the refining business is thriving in the United States, thanks in part to a federal law preventing the export of crude, making feedstock cheap.

The Port Arthur plant’s use of imported crudes has fallen by a third in five years to around 70,000 bpd last year, most of that from Mexico, Venezuela and Kuwait, according to government data.

Refined products like gasoline and diesel can be freely exported, however, and overall shipments have doubled in five years to 4.4 million bpd.

Despite the downturn in oil prices, demand for gasoline and other refined products has remained robust, boosting profits for refiners, and creating an exit point for those who wish to jettison less desirable plants from their holdings.

It is unclear how efforts to sell the stake would relate to Total’s announcement last month regarding plans to build a $1.6 billion ethane cracker at the site.

Additional reporting from Michel Rose in Paris and Erwin Seba; Editing by Marguerita Choy and Pravin Char

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