Unocal Moves to Divest Its West Coast Retailing Unit
In another step toward shedding its long California heritage, Unocal Corp. on Tuesday said it may divest its West Coast gasoline retailing empire--nearly half the company--and use the proceeds to look for oil overseas.
El Segundo-based Unocal said it was setting up its 76 Products business unit as a wholly owned subsidiary as a prelude to a spinoff, joint venture or outright sale of the operation. The unit accounted for 47% of the company’s $7.6 billion in revenue for the first nine months of 1996, but generated only 16% of the company’s total operating profit.
The assets to be transferred to the new subsidiary include the 1,200 familiar orange and blue Unocal 76 gas stations in six states, its pipelines, trucking fleet, terminals and ships, and refineries in Los Angeles, Rodeo in the Bay Area and Arroyo Grande in San Luis Obispo County.
Unocal is the No. 3 gasoline retailer in California with 12.5% of the market, behind Arco and Chevron. It refines about 20% of the gasoline in the state.
But like other oil companies, Unocal has grown increasingly impatient with slim profit in its refining and marketing operations, which have been squeezed in California by environmental restrictions and overcapacity. Unocal spent $400 million over three years to modify its refineries to produce state-mandated clean-burning gas.
Texaco, Shell and Aramco cited similar cost and competitive concerns when they announced earlier this month they would merge their U.S. refining and retail operations into a venture that would control about 15% of the nation’s gasoline market.
“Refining is a capital-intensive business everywhere, especially in California because of all the environmental rules we’ve got, and that’s tough,” said John Vautrain, a manager of Purvin & Gertz, a Long Beach consulting firm specializing in refineries.
Despite strong refining profits the past two quarters, they generally “are not at a high point now,” Vautrain said. “Refining margins go in cycles and through the 1980s California was gangbusters. But it has not been so wonderful in the 1990s. We got overbuilt a little bit and the California economy got soft.”
At the same time, the oil industry is moving offshore in search of more oil as U.S. reserves dwindle and become more costly to produce. Unocal has ramped up its energy projects overseas, especially in Southeast Asia, where it sees much better investment prospects. “It’s an interesting move,” said Sanford Bernstein & Co. oil analyst John Mahedy. “Unocal believes it has attractive alternatives for capital in Asia. So the plan is to de-emphasize refining and focus on the opportunities in the Far East.”
Wall Street reacted favorably on Tuesday, with investors bidding Unocal shares up $1.25 per share to close at $36.75 in New York Stock Exchange trading.
About 3,100 jobs--or 24% of Unocal’s total work force worldwide--would be affected by the divestiture of Costa Mesa-based 76 Products. Unocal established the unit in July 1994.
The sale of Unocal’s refining and retailing operations would mean the end of a tradition in California that dates to 1890 when Union Oil Co., Unocal’s predecessor, struck oil in Santa Paula. Earlier this year, Unocal completed its exit from California oil production when it sold all its statewide wells to Nuevo Energy of Houston for about $500 million.
