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Attorney General Lockyer Announces Shell Will Delay Closure of Bakersfield Refinery for Six Months

Decision Comes On Heels Of Report That Finds Facility Should Be Sold, Not Closed
Friday, August 13, 2004
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced that Shell Oil Company (Shell) has agreed to delay the planned closure of its Bakersfield refinery for six months to provide more time to find a qualified buyer and negotiate a sale.

"I'm extremely pleased with Shell's decision," said Lockyer. "It's a welcome show of cooperation with our effort to keep open this refinery, which is crucial to helping protect California drivers from even higher gas prices than they already pay. I appreciate the willingness of Shell executives to work constructively with my office toward a resolution that serves the public interest and Shell's interests. Clearly, it's possible to put together a deal that makes financial sense for Shell and a new operator and, in the process, benefits the consumers of this state."

Lockyer made the announcement after receiving a report that questioned Shell's decision to close the Bakersfield refinery. The report concluded the facility can be run profitably, and that a sale can be structured that is economically viable for Shell and the buyer.

During a conversation with Lockyer about the report, Shell President Lynn Laverty Elsenhans agreed to keep the refinery running through March 31, 2005 – six months later than the planned shutdown date of October 1, 2004. Additionally, Elsenhans said the company would continue making a good-faith effort to sell the facility to a qualified buyer.

Shell's ability to keep the refinery operating through March 31, 2005 may depend on whether it can obtain a modification of a consent decree that will subject it to financial penalties if it does not reduce air pollution emissions from the facility's heaters and boilers to a specified level by the end of 2004.

Shell may be able to meet the requirements with existing programs and others set to be implemented. If not, Shell has expressed optimism it can obtain a modification of the consent decree. Regardless, Shell will keep the refinery operating at least through December 31, 2004.

Lockyer stressed that the sooner the refinery is sold to another operator, the sooner the facility can be modernized to further reduce its air pollution. He said he was confident a purchase and sale agreement can be completed before the end of the year. "A quick sale not only will benefit drivers throughout California, but also will expedite improvement of the air breathed by area residents," said Lockyer.

The report on the refinery's financial viability was prepared for the Attorney General's Office by the Dallas, Texas-based consulting firm of Turner, Mason & Company (TM&C). Lockyer retained TM&C – one of the nation's leading and most experienced appraisers of oil refineries – as part of his office's antitrust investigation of Shell's decision to close the refinery. That investigation continues, and Lockyer said his office is keeping its options open on how to respond should Shell fail to make a good-faith effort to sell the refinery.

California drivers have long paid the highest gasoline prices in the nation, and face constant peril of chronic price spikes because of defects in the state's market. Those problems include a supply-demand imbalance, low storage inventories, barriers to importation and high concentration of refining capacity ownership.

Shell's Bakersfield refinery produces about two percent of California's gasoline and six percent of its diesel fuel. Those may seem like small numbers, but in the state's dysfunctional market, they are large. Any loss of supply drives up prices for California drivers.

Lockyer has made clear his view that the continued operation of the Bakersfield facility is critical to help protect consumers. "The drivers of this state need the gas produced by this refinery," he said. "I remain committed to doing everything I can to keep it open."

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