Fears of Job Cuts at Caltex Amid Massive Writedown

Another large company in Australia may axe hundreds of jobs. Employees of the two Caltex refineries at Kurnell in Sydney and Lytton in Brisbane have expressed fear of losing work after the oil firm wrote down $1.5 billion value of its refining assets as it continues to conduct a review of refining future in Australia.

Similar to the reason behind the axing of hundreds of jobs in other manufacturing sectors, Caltex is suffering from the high Australian currency forcing the oil giant to turn to its overseas refineries for up to 40 per cent of product sales. The oil firm also cited the challenging market environment such as lower refinery margins and increasing costs which it expects to remain for a prolonged period.

In 2001, Caltex sourced 37 per cent of its refined oil in Australia which was reduced to only 20 per cent by 2008, data from the Australian Competition and Consumer Commission showed.

The job cuts remain a threat for now because the Caltex review will run for six months.

Besides the handicap of operating in the country where the currency keeps on gaining, Caltex also has to compete with Asian rivals that have more modern and larger-scale refineries. The Kurnell refinery was built in the 1950s and has a daily capacity of 135,000 barrels, while the Lytton facility which was constructed a decade later has a daily capacity of 109,000 barrels.

With the write down, Caltex's assets was whittled to $340 million from $1.84 billion. It would impact the oil firm's impairment charge, but not its credit metrics, debt covenants, supply commitments and profit forecasts, said Caltex Chief Financial Officer Simon Hepworth.

Despite the apparently bad news for Australia's employment scenario, there was some bright hope on Thursday after the Australian Statistics Bureau reported that unemployment actually went down to 5.1 per cent in January from 5.1 per cent in December 2011.

On the same day, Wesfarmers also bucked the trend by announcing plans to hire at Coles and its other retail chains. Coles has closed in the gap with number one supermarket Woolworths by offering 50 per cent cuts in prices of fresh produce.

Wesfarmers Managing Director Richard Goyder said there would be more hiring at Coles, Bunnings, Kmart, Target and Office Works as these chains expand networks. However, he also admitted some reductions in employment through outsourcing and other arraignments in some areas of Wesfarmer's businesses.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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