FTC OKs Texaco/Shell/Aramco refining merger

The Refineries Involved [51,555 bytes]

The U.S. Federal Trade Commission (FTC) has approved the merger of certain U.S. downstream assets of Texaco Inc., Shell Oil Co., and Saudi Arabian Oil Co. (Saudi Aramco), pending the divestiture of selected assets.

The merger includes the assets of Star Enterprise, a 50-50 refining joint venture of Texaco and Saudi Aramco (OGJ, Oct. 14, 1996, p. 29).

The companies intend to form two limited-liability ventures combining "major portions of their U.S. refining, marketing, transportation, trading, and lubricants operations," said Texaco.

One company will comprise the eastern U.S. and Gulf Coast refining and marketing businesses of Texaco, Shell, and Saudi Refining Inc.-an affiliate of Saudi Aramco. Ownership in this eastern alliance will be Shell 35%, Texaco 32.5%, and Saudi Refining 32.5%.

The so-called western alliance will include Texaco's and Shell's refining and marketing operations in the midwestern and western U.S., as well as their nationwide trading, transportation, and lubricants businesses. Shell will have 56% ownership in this alliance, and Texaco 44%.

The alliances will market gasoline under both the Texaco and Shell brands.

Divestitures

In accordance with the FTC agreement and similar agreements with the attorneys general of California, Hawaii, Oregon, and Washington, the western alliance must make several divestitures, including Shell's 108,000 b/d Anacortes, Wash., refinery.

Also to be divested are the alliance's interests in either the Colonial or Plantation pipelines. (Texaco owns a 14.27% interest in Colonial, and Shell, a 24.04% interest in Plantation.)

The western alliance also must sell a limited number of Shell and Texaco retail outlets in San Diego and either Shell's terminal and stations in Hawaii or Texaco's terminal and stations on Oahu.

"In addition," said Texaco, "the western alliance must release from their contracts Shell and Texaco jobbers and open dealers in Hawaii and Shell jobbers and open dealers in Oregon and Washington, with the option to rebrand, if they choose."

The eastern alliance is not required to make any divestitures.

The refineries

The alliance involves what are currently the biggest and the ninth and 17th largest U.S. refining companies (see table, OGJ, Dec. 22, 1997, p. 38). Included are 11 of the companies' refineries.

Excluded from the deal are the refineries operated by Shell Chemical Co. at Saraland, Ala., and St. Rose, La. Also excluded is the 269,000 b/d refinery operated by Shell Deer Park Refining Co., a 50-50 joint venture of Shell and Petroleos Mexicanos.

The resulting western alliance will have seven refineries with a total capacity of 846,270 b/d. The eastern alliance will have four refineries with 819,000 b/d capacity. This would make them the U.S.'s sixth and seventh largest refining companies, respectively.

Start of business

The three companies are working to finalize internal approvals for the eastern joint venture. They hope to begin operating the western alliance in first quarter 1998.

In a joint statement, Texaco Chairman Peter Bijur, Shell CEO Philip Carroll, and Aramco CEO Abdallah Jum'ah said, "This combination of the three companies' assets will allow us to accomplish a fundamental change in the way we operate our downstream businesses, improve performance, and create an environment to grow the business. Ultimately, the alliance will generate new opportunities for our customers, employees, vendors, and the communities where we work and live.

"Notwithstanding the required asset divestitures, we believe that we will be able to achieve the objectives that are at the core of this alliance," the three said. They added that the divestitures would be made "with consideration for the concerns of the impacted employees and customers."