Caltex Australia Ltd. may close its refineries after writing down their value by A$1.5 billion ($1.6 billion) because of competition from Asian plants and a strong Australian dollar.
The nation’s biggest oil refiner aims to complete a yearlong review of its facilities in about six months, with options ranging from investment to closure, Sydney-based Caltex said today in a statement. The writedown reduces the book value of its refining assets to A$340 million, the company said.
The company, half-owned by San Ramon, California-based Chevron Corp., operates the Kurnell refinery in Sydney and the Lytton refinery in Brisbane. Royal Dutch Shell Plc, Europe’s largest oil company, said last year it would halt refining operations at its Clyde plant in Sydney before mid-2013, saying it was no longer competitive against Asian “mega-refineries.”
“There’s no doubt an enormous amount of work needs to be done to push the button on this, but from an economic perspective, this isn’t a difficult decision” to close the refineries, Mark Samter, an analyst at CLSA Asia-Pacific Markets in Sydney, said by phone today. “In 10 years time there is probably no refiner left in Australia.”
The Australian refiner may decide to close Kurnell first, potentially in 2014, and Lytton later, Samter said. The Caltex plants are among seven oil refineries in the country, with others operated by BP Plc and Exxon Mobil Corp.
Caltex’s two refineries are “disadvantaged compared to the modern, larger scale and more efficient refineries in the Asia region,” Caltex said. “This disadvantage has been exacerbated by the impact of the ongoing strength of the Australian dollar,” which has weakened margins, it said.
Caltex shares fell 2.2 percent to A$12.27 at 1:04 p.m. Sydney time, while the benchmark index dropped 1.4 percent. The Australian dollar is currently trading at almost 30 percent higher than its average over the past 10 years.
The company, which started its refinery review in August, said its 2011 profit outlook is unchanged, excluding the effect of the impairment charge. Caltex said it doesn’t expect any effect on “safe and reliable operations, credit metrics, debt covenants and commitment to reliable supply.”
Caltex said it would book a A$1.5 billion non-cash adjustment in its 2011 accounts.