Chevron streamlining downstream activities, to make 2,000 jobs redundant

As it concentrates increasingly on extracting oil and natural gas, Chevron expects 1 percent annual production growth through 2014, and 4 percent to 5 percent growth in the three years after that, driven by two big Australian gas projects.

John Watson, in his first full presentation to analysts since becoming chief executive this year, affirmed his support for refining and marketing, even as that downstream side of the business undergoes wrenching changes. U.S. and European refiners have been hit hard as the economic slump left them with too much capacity while demand for fuel declined, hammering their profit margins.

Mike Wirth, Chevron’s executive vice president for global downstream, expects the tough market conditions to last several years and said growing competition from refineries in Asia and the Middle East will threaten U.S. and European operations. “Good refineries, competitive refineries in those markets will continue to exist, but the refineries at the margin and the weaker ones are the ones that are under the most pressure and the most vulnerable,” he said at the meeting in New York. “The less competitive facilities over time are likely to drop out of the market.”

Watson told reporters after the meeting that he did not expect to have to close any refineries, as France’s Total SA said on Monday it is doing in Dunkirk. “Our refineries are competitive. The issue for us has been the industry conditions are very difficult right now,” he said. The company will seek bids for some downstream operations in Europe, the Caribbean and Central America, and review operations in Hawaii and Africa outside South Africa.

Asked about the Hawaii refinery, already under review since May, Watson said that after making some improvements, Chevron does not plan to shut it or convert it to a fuel terminal.

Chevron had already received unsolicited expressions of interest in the Pembroke refinery in Wales, which has capacity to refine about 210,000 barrels per day. But the refineries up for sale will join many others already put on the market by rivals, including Royal Dutch Shell Plc and Total.

Chevron said it ultimately wants its downstream business to be in fewer than 40 countries, versus 93 last year, and to own 1,900 filling stations, down from 3,200 in 2009.

Along with 1,900 jobs already cut, the downstream workforce will be reduced by a fifth by the end of 2010. Wirth expects after-tax severance charges of $150 million to $200 million this quarter, and Chevron will continue to cut jobs into 2011.