Shell Canada said it's going ahead with plans to convert its Montreal refinery into a distribution terminal after announcing Monday that negotiations with a potential buyer have fallen through.

Shell Canada plans to convert its Montreal East refinery into a distribution terminal after negotiations to sell the 77-year-old facility failed. (Paul Chiasson/Canadian Press)

Shell and Delek US Holdings, a subsidiary of Israeli oil giant Delek, issued a release saying that last-ditch talks had failed to resolve issues that led to a breakdown of negotiations earlier this year.

Shell had previously rejected a $420-million offer from Delek for the 77-year-old refinery, which employs 800 people, and the company's gas stations in Quebec and the Maritimes.

Shell has been under considerable political pressure to find a buyer for the refinery instead of converting it to a distribution terminal, which would end up employing only about 30 people.

The companies resumed talks last week to see if they could strike a deal.

"Unfortunately, after considerable efforts to find common ground on a number of complex issues, both sides have determined not to pursue further negotiations with regard to the Montreal East refinery," Delek US CEO Uzi Yemin said in the joint release.

With the talks ended, Shell said it would focus on safely converting the refinery to a terminal in a way that ensures adequate supply of fuel for its customers in Quebec, Atlantic Canada and Eastern Ontario.

"In this light we look forward to the completion of the regulatory review so we can complete this activity as soon as possible," Shell vice-president Richard Oblath said.

Government approval needed

Shell must still get the Quebec government's approval to shut down the refinery.

In July, the union representing employees at the facility obtained an injunction from Quebec Superior Court temporarily stopping Shell from dismantling the refinery while the possibility of a sale remained alive.

The companies did not offer any details about what caused the latest round of negotiations to fail.

Delek had previously walked away from talks because of the expensive purchase price and heavy maintenance costs required for the refinery.

Shell had estimated that the total price tag to purchase and upgrade the refinery would be at least $1 billion.

With files from The Canadian Press