Total Fina - a refinery romance?
14 December 1998 00:00 [Source: ICB]
The news that Total and Petrofina are to merge looks good
for oil and refining but less of a deal for chemicals. John Baker
examines the compatibility of these unlikely chemical
bedfellows.
The merger of Total and Petrofina to create Total Fina, the
third largest oil company in Europe, is undoubtedly driven by the
oil/refinery side of the business, as with the BP Chemicals/Amoco
and Exxon/Mobil deals.
As such, it throws together two chemicals operations with
largely dissimilar portfolios and strategies - unlikely candidates
if the truth were known.
Total runs small petrochemicals activities - propylene and BTX -
as part of its downstream refinery and marketing activities. In
addition, it has a much larger, virtually standalone FF28.5bn
($5.1bn) turnover speciality chemicals business that consists of
five units: Hutchinson rubber processing (FF12.1bn sales in 1997),
Kalon coatings (FF4.5bn), Coates inks (FF4.5bn), resins (FF5.3bn)
and adhesives, primarily Bostik (FF2bn).
The strategy for the chemicals business has been one of growth
through acquisition and internal efforts to maintain a 25%
contribution to group operating profits. Just last month, for
instance, Total announced the startup of three new Hutchinson
plants in the US, China and Mexico, as part of its plans to
globalise the business. The business is the now third largest maker
of rubber products in the world, excluding tyres.
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Petrofina, on the other hand, has made much of its refinery
integration into petrochemicals, with the olefins stream leading
directly into hdPE, PP and PS production in Europe and the US.
Year-end 1998 capacities are 1.42m tonne/year for PP, 885 000
tonne/year for hdPE and 500 000 tonne/year for PS.
It has been investing significantly on both sides of the
Atlantic recently, and plans include a huge cracker in the US with
BASF and the addition of PE capacity in Europe with Solvay. Last
year total monomers output hit 1.9m tonne and polymers and
elastomers achieved record figures, close to 2.2m tonne of
output.
Outside this main petrochemicals activity Petrofina too has a
coatings business - Sigma Coatings - and operations in elastomers
and oleochemicals. In coatings Petrofina announced a deal in July
to add Lafarge's BF8bn ($231m) decorative paints business Peintures
Batiment to its BF31bn Sigma operations.
The Total merger, adding the FF4.5bn Kalon operations, may alter
the structure of the deal, which was expected to be sealed by the
end of this year and result in a separate public listing.
Putting all three businesses together would create a coatings
business with FF11.6bn of sales, largely in western Europe,
although with some industrial and marine coatings operations with a
global spread. It would rank joint first in the European decorative
coatings market alongside Akzo Nobel.
In the merger announcement, Total and Petrofina make little
comment about the chemicals aspect of the deal, save for the
concentration in coatings. They estimate immediate cost savings for
the new group of FF2.1bn to be carved out in the next two years,
including 1000 job losses from the workforce of 69 000. These
savings may be augmented by a further FF1-2bn of productivity
enhancements.
The partners note that in northwest Europe, combining Total's
refineries with Petrofina's refining and petrochemical operations
at Antwerp and Feluy will 'allow the combined entity to meet more
efficiently the constraints imposed by the new European fuel
product specifications'.
To meet these, Petrofina is already investing BF4bn in an
aromatics extraction unit at Antwerp to produce 800 000 tonne/year
of xylenes and benzenes. The unit will be operational by 2000 and
Petrofina says it has already signed contracts to secure sales of
its total aromatics production.
Other synergies in petrochemicals identified by the merged group
include propylene in northern Europe and aromatics.
Petrofina currently has relatively small cracker-derived mixed
xylenes (25000 tonne/year), toluene (55 000 tonne/year) and benzene
(120 000 tonne/year) capacities in Europe, all at Antwerp and
forming its share of the 65:45 Fina-Antwerp Olefins jv with Exxon
Chemical. In the US it has refinery-based streams of benzene (230
000 tonne/year) and xylenes (385000 tonne/ year), both in
Texas.
These volumes will add to Total's aromatics capacities at
Vlissingen and Gonfreville of around 140 000 tonne/year of benzene,
240 000 tonne/year of mixed xylenes, 40 000 tonne/ year of toluene,
and 110 000 tonne/year of OX and 120 000 tonne/year of PX.
The new oil major will be headed up by Total's Thierry Desmarest
as chairman of the board and chief executive officer. Vice chairman
will be Petrofina's Franois Cornélis, who will have overall
responsibility for petrochemicals, paints and US activities.
Jean-Pierre Seeuws of Total will retain responsibility for
speciality chemicals, acting as an executive vice president.
The group will consist of three major divisions: upstream,
downstream and chemicals, with the latter split into petrochemicals
and speciality chemicals. Downstream's refining and marketing
operations and the petrochemicals business will be headquartered in
Brussels, with speciality chemicals in Paris.
Pro forma petrochemicals sales for Total Petrofina in 1997 would
have been FF17.3bn, split FF2.1bn from Total and FF15.2bn
Petrofina. Speciality chemicals (including paints) would have been
FF33.6bn, split FF28.5bn Total and FF5.1bn Petrofina.
Speaking to the press last week, Desmarest indicated the merger
would not deflect Total from its mid-term aim of keeping a balance
in capital employed of 50% upstream, 30% refining/distribution and
20% chemicals, itself split one-third petrochemicals and two-thirds
specialities.
He confirmed Total Fina would keep Petrofina's petrochemicals
businesses as their 'average profitability over the cycle was
good', but added that the coatings side would be reviewed with a
regard to optimising its activities.
TOTAL FINA PRO FORMA FIGURES FOR 1997
| petrochemical sales |
$2.96bn |
| speciality chemicals sales |
$5.76bn |
ICIS Copyright © Reed Business Information 2009
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