Largest U.S. Refinery Changes Ownership

Saudi Arabian Oil Company (Saudi Aramco) through its wholly owned Saudi Refining Inc. (SRI) subsidiary and Royal Dutch Shell plc (Shell), through its U.S. downstream affiliate, recently announced they have signed a non-binding Letter of Intent (LOI) to divide the assets of Motiva Enterprises LLC. The Motiva joint venture was formed in 1998 and has operated as a 50/50 refining and marketing joint venture between the parties since 2002.

Large coker in operation.

In the proposed division of assets, SRI will retain the Motiva name, assume sole ownership of the 603,000 bpd Port Arthur, Texas refinery, retain 26 distribution terminals, and have an exclusive license to use the Shell brand for gasoline and diesel sales in parts of Texas, the majority of the Mississippi Valley, the Southeast and Mid-Atlantic markets. Shell will assume sole ownership of the Norco, Louisiana refinery (where Shell operates a chemicals plant), the Convent, Louisiana refinery, nine distribution terminals, and Shell branded markets in Florida, Louisiana and the Northeastern region. The combined refining capacity at the Norco and Convent refinery is 473,000 bpd, according to U.S. government statistics.

“Motiva’s performance has been transformed in the last two years. We propose to combine the assets we will retain from the joint venture with Shell’s other downstream assets in North America. This is consistent with both the group and downstream strategy to provide simpler and more highly integrated businesses, which deliver increased cash and returns” said John Abbott, Shell downstream director.

Meanwhile, it is assumed that Saudi Arabia’s national oil company wants to buy more U.S. refining and chemical plants to expand its footprint in the world’s largest energy market once the break-up of its joint venture with Shell is complete. Officials from SRI told employees following the announcement that the state-owned firm was intent on buying more assets after the Motiva break-up is finished, according to those officials who attended the briefing and asked not to be identified due to the sensitivity of the issue. The officials did not identify possible acquisition targets, the sources said.

The plan comes as Aramco considers a landmark public offering of its vast downstream operations, which amount to nearly 5.5 million bpd of solely or jointly owned refining capacity around the world. It also underscores the company’s desire to expand its footprint in major markets, helping guarantee demand for its crude oil exports amid intensifying global competition. The breakup is unlikely to have any immediate impact on sales of Saudi crude to the U.S., Saudi Arabia’s third-largest customer.

Shell expects to complete the split this year pending necessary regulatory approvals, according to an internal memo from John Hollowell, chief executive of Shell Midstream Partners LP, Shell’s pipeline master limited partnership. The companies intend to start running their respective independent businesses “as quickly, efficiently and safely as possible”, it said. The Port Arthur refinery completed a $10 billion expansion that doubled refining capacity to the current 603,000 bpd and became fully operational by 2013.