ExxonMobil Sells Stake in Japanese Refining Business for $4B

(REUTERS) -- Japan's second-biggest refiner, TonenGeneral Sekiyu KK, said on Monday its $4-billion purchase of a controlling stake in itself from U.S. oil major Exxon Mobil Corp would help speed business decisions.

The purchase of the Exxon Mobil stake comes as domestic oil demand falls and Japanese refiners' products prove uncompetitive with rivals located closer to the developing economies that are the world's key drivers of growth.

Exxon Mobil will retain a 22 percent voting share in the Japanese oil refiner, down from 50 percent, with the 302 billion yen ($3.94 billion) transaction set to be completed by June 1, TonenGeneral said on Sunday, confirming a Reuters report.

It will enable us to complete the procedure of our decision making within this country, Jun Mutoh, managing director of TonenGeneral, who has led talks on the transaction since last year, told reporters on Monday.

A key decision faced by TonenGeneral is how to tackle Japanese government rules aimed at improving the competitiveness of the country's ailing oil sector that require the firm to either cut its crude refining capacity by about 30 percent or build a new secondary unit.

Since analysts see little chance of new investment, the TonenGeneral group, including Kyokuto Petroleum Industries, a 50-50 joint venture with Mitsui & Co, needs to cut capacity to 578,000 barrels per day by March 2014, Reuters calculations show, from 836,000 bpd now.

Mutoh declined to comment on how the firm would meet government regulations.

We cannot easily elaborate about our three refineries and our partner's plant in regard of a future decision related to the regulations, he said. We're hoping to find ways to make every party happy.

Refinery consolidation is sweeping the developed world, with Europe's biggest independent refiner Petroplus becoming the latest victim, being forced to close three of its five oil refineries after lenders froze credit lines in December.

A deal struck on Sunday will allow TonenGeneral, which uses crude from Exxon and distributes Exxon brand oil in Japan, to operate four times more service stations by bringing under its umbrella those now under the Japanese unit of Exxon Mobil.

The TonenGeneral stake purchase could further encourage realignment among Japan's oil refiners, which have been cutting capacity to cope with falling demand caused by a weak economy and a shift to more efficient and environmentally friendly forms of energy.

In April 2010 refiner Nippon Oil and rival Japan Energy's parent company, Nippon Mining Holdings, merged to become JX Nippon Oil & Energy Corp, the country's top refiner.

Oil demand in Japan, the world's No.3 consumer, has been falling steadily for more than a decade, to about 3.4 million bpd now, down about 19 percent from a record 4.2 million bpd in 1999.

While Mutoh ruled out plans to form capital alliances with state-run oil companies in the Middle East, some analysts said such alliances were possible to ensure stable crude supply.

An oil company may ask oil suppliers like Qatar to hold a part of its shares now that they are all concerned about stable crude supply, independent oil economist Osamu Fujisawa said.

But I doubt if people will allow a further fall in the number of oil companies. Retailers are already worried about the refiners' increased pricing power, he said.

Smaller rival Showa Shell Sekiyu is 15 percent owned by state oil giant Saudi Aramco after Royal Dutch Shell sold down its stake to 35 percent, while Cosmo Oil Co is one-fifth owned by the Abu Dhabi government.

Japan's total refining capacity stands at 4.5 million bpd, down nearly 17 percent from 5.4 million bpd at the peak of oil demand in 1999.