UPDATE: Caltex In A$1.5 Billion Writedown, May Shut Refineries

Caltex Australia Ltd. (CTX.AU) has written down the value of its two oil refineries by A$1.5 billion, marking another milestone in the decline of Australia's refining sector.

The country's biggest refiner, half-owned by Chevron Corp. (CVX), said Thursday that the results of an operational review due in six months could lead to refinery closures.

Its Kurnell facility in Sydney and Lytton refinery in Brisbane together employ about 800 people and make use of a further 650 contractors--although the number fluctuates according to operational requirements, a spokesman said.

Australia currently has seven operational refineries that convert oil into gasoline, but the country also imports a substantial quantity of its liquid fuels.

Refined products are traded by sea throughout the Asia-Pacific, and while Caltex is chiefly a local provider, its margins have been hit by a regional supply overhang.

And while Australia's refineries vary in size, they are all dwarfed by giant new facilities that are being built in places like India and China, which are flooding the market with cheaply-produced fuel.

Another of Australia's seven refineries, Clyde in Sydney, is in the process of being shut down and converted into a fuel import terminal by Royal Dutch Shell PLC. (RDSB.LN).

Of the remaining six, ExxonMobil Corp.'s (XOM) Altona refinery in Melbourne is often touted by analysts as a candidate for divestment--even though the U.S. company continues to voice its ongoing commitment to the facility.

Apart from Caltex's two refineries, Shell also owns the Geelong refinery in Melbourne and BP PLC (BP.LN) owns two, in Brisbane and Perth.

A high Australian currency is making matters worse for Caltex by eroding its margins, while sudden oil price spikes tend to boost refining input costs.

Chief Executive Julian Segal said the big writedown does not necessarily foretell the outcome of the refinery review, which he said may alternatively lead to further investment in its assets.

"Caltex supplies over one third of all transport fuels in Australia," Segal said. "Regardless of any decision we might make on the future of our refineries, our commitment to maintaining reliable supply to commercial and retail customers alike is at the very core of our business," he said.

Caltex also has a fuel marketing business, which is performing well thanks to Australia's booming resources sector and its positive effects on parts of the wider economy.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com

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