Strategic issues and implications for the refining and marketing sector
- Smith Barney Inc., New York, NY (United States)
Refiners have faced a challenging business environment for the past decade. During this period, the industry has made approximately $25 billion of capital expenditures primarily to comply with increased governmental mandates, faced highly volatile petroleum product prices and garnered a return to equity of only 5%. While worldwide and US refining capacity has been flat in recent years, demand for refined petroleum products has been on the upswing and domestic supplies have also increased due to improved US capacity utilization rates (76% in 1984 and 93% in 1994) and increased imports (gasoline sales up 11% since 1984). The result has been highly volatile and generally weak refining margins (net Gulf Coast crack spread ranging from ($.95)/bbl in 1984 to $1.84/bbl in 1990 and averaging $.81/bbl since 1984). In response to the sustained difficulties in the marketplace, one has recently witnessed some strategic realignment in the industry. Several of the integrated companies, frustrated with the required capital expenditures and meager returns, have decided to shed non-core, non-strategic refining assets. For the most part, these assets have been bought by independents at, by historical measures, very attractive terms. This paper will provide an overview of the economics of the refining business, discuss the recent trends in refinery M and A activity and summarize possible implications of the recent strategic realignment.
- OSTI ID:
- 93349
- Report Number(s):
- CONF-9503162-; TRN: 95:018355
- Resource Relation:
- Conference: 93. annual meeting of the National Petroleum Refiners Association (NPRA), San Francisco, CA (United States), 19-21 Mar 1995; Other Information: PBD: 1995
- Country of Publication:
- United States
- Language:
- English
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