* Also plans to sell Japan sales, other ops – sources* Deal will likely be worth around 400 bln yen – sources* Move part of Exxon’s global strategy to focus on upstream
assets* TonenGeneral shares slide on deal funding concernsBy Taro Fuse and Emi EmotoTOKYO, Jan 4 (Reuters)- WireNews – Exxon Mobil is in talks to
sell most of its 50 percent stake in TonenGeneral Sekiyu KK
back to its Japanese refining partner and unload other
assets in Japan in a deal that could be worth as much as $5
billion, four sources with knowledge of the matter said.The deal would mark a retreat from the world’s third-largest
economy by the U.S. oil giant, which is focusing its resources
globally on exploration and production and shifting away from
so-called downstream assets like those held in Japan.The move could also spark realignment among Japan’s oil
refiners, which have been cutting capacity to cope with
declining demand caused by a weak economy and a shift to more
efficient and environmentally-friendly forms of energy.TonenGeneral, which imports and distributes Exxon oil in
Japan, ranks as the country’s No. 2 refiner behind JX Holdings
. Smaller rivals include Idemitsu Kosan Co,
Cosmo Oil and Showa Shell.If this report is true, it could open the door for
TonenGeneral to realign in alliance with another company. That
may or may not include capital ties, said Hidetoshi Shioda,
senior analyst at SMBC Nikko Securities. 1CAPITAL RELATIONSHIP2Exxon, the world’s largest publicly traded oil company,
holds 50. 2 percent of TonenGeneral, a stake worth 224 billion
yen ($2. 2 billion) at Wednesday’s close. It also owns a sales
network of around 4,000 gas stations across Japan. Exxon is planning to keep a certain level of ownership in
TonenGeneral, seen as key to maintaining the refining
partnership, according to the sources, who spoke on condition of
anonymity because the talks are still ongoing. The cost of the deal could climb to as high as 400 billion
yen ($5. billion), but may settle at a lower price depending on
the size of the stake to be sold, negotiations over the other
assets, and TonenGeneral’s funding situation, the sources said. An official announcement could come as early as this month,
the sources said.TonenGeneral said in a statement that ExxonMobil was
considering a change to its capital relationship with
TonenGeneral, but nothing had been decided. Exxon stressed it
had no plans to withdraw from Japan.ExxonMobil has no plans to exit the Japan market. We have
been doing business in Japan for over 118 years, the oil giant
said in a statement to Reuters.FUNDING BURDENShares of TonenGeneral fell 5. percent to 792 yen, its
lowest close in 14 months, reflecting investor worries over the
burden the deal would place on its finances. Trading in the
shares was the busiest in at least 24 years.TonenGeneral plans to borrow money from several banks to
finance the purchase, the sources said.It’s hard to see the strategic direction of TonenGeneral
after it buys the assets from Exxon. A deal in the order of 400
billion yen would also strain its cash situation and raise the
risk of lower dividends, said Yoshihiro Okumura, head of
research at Chibagin Asset Management.Oil demand in Japan, the world’s No. consumer, has been
falling steadily for more than a decade, to about 3. million
barrels per day (bpd) from a record 4. million bpd in 1999.That slide has accelerated following a devastating
earthquake and tsunami in March, which dented economic activity
and prompted some manufacturers to shift factories abroad.Industry sources had speculated Exxon may look to scale back
in Japan after the country introduced new regulations in 2010,
with a 2014 deadline for refiners to boost their ability to
process heavy oil by building new cracking units or scrapping
capacity. The directive was seen as particularly burdensome for
TonenGeneral due to its relatively low heavy oil processing
capacity. The Exxon unit has been a vocal critic of the scheme,
calling it unnecessary meddling by the government. Despite the unfavourable operating environment in Japan, the
relationship with TonenGeneral serves an important strategic
purpose for Exxon, making it unlikely that it would look at a
complete withdrawl, some analysts said. If ExxonMobil pulled out, they would lose a good outlet,
and they could no longer ask TonenGeneral to import ExxonMobil’s
equity crudes, said independent oil economist Osamu Fujisawa. 4
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