Good morning, committee members.
At Shell we are deeply conscious that our decision impacts our employees, their families, and others. In regard to our employees, we will treat them fairly, and we appreciate the professionalism they have shown throughout this difficult time.
I hope our attendance here today will provide you with a better understanding that Shell has made substantial efforts to sell the Montreal East refinery in a difficult economic environment and that its conversion to a terminal is necessary to supply our customers.
There have been numerous news articles and public statements regarding our announcement of this conversion. Many of them have been speculative and inaccurate. There are three key issues related to the attempt to sell the refinery: it was marketed to a large number of potential purchasers; a significant capital investment is required to continue to operate the refinery in a competitive and safe manner; and despite a year of effort from a large number of parties who were contacted, many of whom analyzed the opportunity in great detail, no offers were made to us.
We're not the first to end our refining operations in Montreal East. Despite significant challenges, we have continued longer than others.
The business climate has changed substantially, particularly in the past decade as global competition has increased. Several refineries in North America have been closed and a few converted in recent times. New refineries in other parts of the world are coming on stream with advantages that smaller, older refineries such as ours in Montreal do not have. Thus margins are lower as unit costs for a smaller refinery become higher.
Shell continuously reviews our refineries to understand the future investments needed to sustain safe, continuous operations. In the case of the Montreal East refinery, this analysis determined that some $600 million of capital would be needed in the near term, notwithstanding the $400 million in capital expenditures we have spent in the last six years.
Thus in July 2009 we publicly announced our intention to seek a buyer for the site, and more than 25 different parties were contacted or contacted us. From this group, 17 made serious inquiries regarding the site and its operations; six of these parties progressed to due diligence, where they were given very detailed information on the site and its operations. Unfortunately, no one, after this detailed analysis, concluded that the refinery warranted their investment, and this process did not result in one single offer.
As a result, in January 2010 we regretfully announced our decision to convert the refinery to a terminal. We wanted to give our employees proper notice of this decision and ensure we could maintain a supply of petroleum products to our customers.
The government asked us, and we agreed, to delay our conversion plans and work cooperatively with a special committee it had created to seek out potential buyers. The special committee is reported to have made more than 100 contacts. As a result of this effort, five of these parties conducted a more detailed evaluation of the site and had open access to discussions with the Shell personnel responsible for this transaction. Out of all of these, only Delek US, a credible refinery operator, came forward with a viable expression of interest. However, after constructive and good faith negotiations, Delek unfortunately withdrew from the process.
Several factors likely influenced decisions of these many interested parties over the past year, one of which was that any potential buyer had to be able to finance three things: a fair purchase price; the cost of approximately $400 million to $500 million of working capital; and another $600 million of capital investments that would be needed in the near term to sustain the site, keeping it operating in a safe and secure manner.
We understand that the special committee offered advantageous financing, acquisitions of shares in the prospective bidder, and direct cash grants that may or may not have had to be repaid. However, despite all of the extensive efforts made by the special committee, the Quebec government, and our employees, as well as the proposed incentives and investments, not one out of the over 100 prospective purchasers saw an acceptable future for this site as a refinery, and none presented us with an offer.
I would like now to hand the floor back to my colleague, Monsieur Houle.