Oil giants Royal Dutch Shell PLC and Saudi Arabian Oil Co. plan to end their long-standing fuel partnership, putting ownership of the biggest refinery in the U.S. in Saudi Arabia's hands.
Shell and Saudi Aramco formed their Motiva joint venture nearly two decades ago and spent $10 billion to double the size of their plant in Port Arthur, Texas, in 2012. The move made the 600,000 barrel-a-day fuel factory the largest in America; a significant portion of the gasoline, diesel and jet fuel produced every day is exported to overseas markets.
Saudi officials in January floated the idea that shares of the state-owned oil company might be sold in a public offering, amid a broader push to privatize state-run companies that coincides with a protracted slump in oil prices.
The Motiva split could help pave the way for such an equity offering, while also giving Shell assets that it could place in its tax-advantaged master limited partnership, said Sam Margolin, an energy analyst at Cowen & Co.
On Wednesday, the companies said they had signed a nonbinding letter of intent and had preliminarily agreed to divvy up three Gulf Coast refineries between the companies. Shell would retain two plants with a combined capacity to process 465,000 barrels of oil a day in Louisiana where it also runs a chemical complex, as well as nine distribution terminals.
Saudi Aramco would take the Port Arthur refinery along with 26 fuel terminals.
Under the proposal, Saudi Refining also would have an exclusive, long-term license to sell gasoline and diesel under the Shell brand in Texas, most of the Mississippi Valley, the Southeast and the mid-Atlantic markets. Shell would retain its branded markets in Florida, Louisiana and the Northeastern region. No additional details were disclosed.
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.
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