Shell, Aramco to break up joint U.S. refinery venture

Mar 17, 2016, 2:34 PM EDT
Oil refinery.
(Source: Siggi Ragnar/flickr)

Shell and Saudi Aramco agreed to break up their U.S. refinery partnership.

Bloomberg reports:

Royal Dutch Shell Plc and Saudi Arabian Oil Co. are ending an 18-year refining partnership as the Anglo-Dutch titan prepares to sell billions of dollars of assets and the Middle East nation’s state oil company weighs an initial public offering. Shell will assume control of two Louisiana refineries operated by the Motiva Enterprises LLC joint venture, as well as nine fuel terminals and rights to Shell-branded markets in Florida, Louisiana and the U.S. Northeast, the companies said Wednesday in a statement. Aramco will retain the Motiva name and take ownership of the largest U.S. refinery in Port Arthur, Texas, along with 26 terminals and exclusive license to sell fuel under the Shell brand across Texas and much of the U.S. Midwest and Southeast. Shell will get some cash from Aramco following the split, a first step in The Hague-based company’s plan to sell $30 billion of assets in three years, a spokesman said. Chief Executive Officer Ben Van Beurden has pledged to raise money from divestments to help maintain dividends and recover some of the cost of buying BG Group Plc. Aramco, the world’s biggest oil producer, is exploring plans for an IPO that may give it a value of as much as five times that of Apple Inc., according to Bloomberg Intelligence. “These assets ranked probably in the bottom quartile of Shell’s portfolio and they are going to be moved,” Fadel Gheit, an Oppenheimer & Co. analyst, said in a telephone interview on Wednesday. “They’ve got to fund the dividend.”

Reuters notes:

Refineries have recently enjoyed a boom time as a near 70 percent plunge in oil prices since mid-2014 spurred demand for gasoline from around the world, helping many oil companies recover revenue lost from oil production. Chief Executive Officer Ben van Beurden has said Shell's disposals would initially focus on the refining, storage and retail divisions, known as downstream, whose value has held up during the current downturn. Aramco is expected to pay Shell an as yet undisclosed sum on the completion of the deal, a Shell spokesman said. Although an outright sale of the refineries is less profitable, Shell will be able to offer for sale much of the infrastructure linked to the operations, including pipelines, storage tanks and distribution facilities, to other companies including Shell Midstream Partners, a master limited partnership (MLP) formed and listed by Shell in 2014.

The Wall Street Journal writes:

Motiva was formed in 1998 by Shell Oil Co., Texaco Inc. and Saudi Aramco, combining assets of their Eastern and Gulf Coast refining and marketing businesses. Under the terms of the initial agreement, Houston-based Shell Oil, a unit of Royal Dutch Shell, owned 35% of Motiva, while Texaco and an Aramco affiliate each held a 32.5% stake. Texaco sold its stake in Motiva as part of its merger with Chevron Corp. Shell and Aramco have run Motiva as a joint partnership since 2002.