"The new organization will ensure that our downstream business remains competitive well into the future," he said.[image-nocss]
The San Ramon, Calf.-based company said it has not yet decided how many people will be laid off, but that the changes will take place by the third quarter. The restructuring will include exiting some markets, the company said without providing details.
The move comes as the downstream business has become much less profitable than it has been in recent years due to weak demand for fuel. Chevron warned investors last week in its interim update that it expects its fourth-quarter earnings to be lower than the previous quarter, driven by a "sharp" decline in profits from its refining and marketing business.
"This restructuring is not surprising because Chevron's downstream business is an area that has been struggling from a profitability stand point," Jason Gammel, an analyst at Macquarie Research, told Dow Jones. "It's not just Chevron, it's the whole industry."
The entire energy sector has been dealing with the effects of slackening demand for fuel caused by the global economic downturn. The refining sector has been especially hard hit and several plants were idled or indefinitely closed in 2009.
Valero Energy Corp., the largest independent refiner in North America, closed a major gasoline refinery in Delaware in November and laid off 550 workers. Sunoco Inc. also shut down its Eagle Point refinery in Westville, N.J., last year and furloughed 400 workers in October last year in response to a poor operating environment.
A CSP Daily News poll earlier this week asked, "Does the recent permanent shutdown of several U.S. refineries concern you about potential future gasoline supply shortages?" Of the nearly 200 responses, more than 54% said "yes, a lot"; nearly 33% said "yes, a little"; and more than 13% said "no."
Chevron's move is the latest in a series of changes to its refining and marketing operations. In December, Chevron said it would stop supplying more than a thousand independently owned gas stations in the eastern United States, a move that followed the company's exit last year from marketing operations in Brazil and various countries in Africa. The company has also said that the reviewing of its global downstream operations could include the closure of its Hawaii refinery.
Last month, Chevron said its 2010 capital budget will be $21.6 billion, 5% lower than its 2009 budget, as it focuses on exploration and development of oil and natural gas at the expense of refining.
Other major oil companies have engaged in transformations in order to face the economic downturn. Houston-based ConocoPhillips said in October it will sell approximately $10 billion worth of assets over the next two years. In early 2009, the company cut its capital spending and laid off lay off thousands of workers. Royal Dutch Shell Plc last year also said it would lay off 5,000 people to cope with the difficult economic environment.
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