LONDON, July 22 (Reuters) - ConocoPhillips has cancelled a plan to upgrade its Wilhelmshaven refinery in Germany and is considering either selling or turning it into a terminal, the U.S. oil major said on Thursday.
'This move is consistent with our stated strategy of maintaining capital discipline and reducing our downstream portfolio over time,' Willie Chiang, senior vice-president of ConcoPhillip's refining, marketing and transportation, said in a statement.
'We will also explore other options to improve shareholder value including operating the facility as a terminal and pursuing the sale of the asset.'
The company, which is the third-largest U.S. oil company by market value, said it expected an after-tax, non-cash charge of about $1.1 billion in the second quarter related to the cancellation of the upgrade plan.
Analysts on average were expecting earnings of $1.57 a share for the second quarter, according to Thomson Reuters I/B/E/S.
ConocoPhillips has joined the queue of oil companies, such as Royal Dutch Shell, Ineos and Total, which have been looking for buyers of their refining assets since last year.
Wilhelmshaven is a simple, or hydroskimming, refinery. In general, it is less profitable than a complex refinery due to high yield of heavy fuel oil, which is sold at discounts to crude and is mostly in demand in Asia.
A complex refinery is often equipped with advanced systems, such as coking and cracking units, which can convert fuel oils to lighter, profitable products such as gasoline and diesel.
'Basically, we think that the refinery is unlikely to be financially viable as a stand-alone facility... ConocoPhillips' decision is understandable because it would need considerable new investment in cracking or coking units to make it competitive,' Roy Jordan with Energy Market Consultants said.
'Even then, it would be operating in a European market which has a large volume of spare refining capacity, where oil demand is on a declining trend and the prospect of generating a reasonable return on the investment is doubtful.'
ConocoPhillips bought Wilhelmshaven, which can process about 260,000 barrels of crude oil a day, from Louis Dreyfus in 2005. Refining margins rose to record highs in the first half of 2008.
The value of the deal was thought to be about $2 billion, but this is not confirmed.
The plant has been shut since October. Many oil companies made losses on their refining business in the fourth quarter last year due to a sharp fall in fuel demand in Europe.
The plant failed to return to normal operation due to a fire in May during the restart, missing some recovery in refining margins in May and June.
ConocoPhillips did not specify in the statement if the company would still restart the refinery.
Other oil majors have been divesting refining assets mainly in Europe as global refining hubs have been shifting to the Middle East, India and China, where demand is expected to grow.
But Shell and Ineos have not find sealed deals to sell their refining assets in the UK and Germany, while Total is looking to sell its Lindsey plant in the UK.
Last year, Swiss-based independent refiner Petroplus turned its Teesside refinery into a terminal after failing to find a buyer.
(Reporting by Ikuko Kurahone in London and Amulya Nagaraj in Bangalore, editing by William Hardy) Keywords: CONOCOPHILLIPS/ (ikuko.kurahone@thomsonreuters.com; +44(0)20 7542 8145; Reuters Messaging: ikuko.kurahone.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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