Shell-Texaco JV to sell two refineries

June 14, 1999
Equilon Enterprises LLC has signed letters of intent to divest two of its Midwest U.S. refineries. The move is interesting in that it will focus Equilon's operations more on marketing than on refining, while doing the opposite for one of the buyers, Clark USA Inc. of St. Louis. Clark plans to buy Equilon's 295,000 b/d Wood River, Ill., plant, while Houston-based Frontier Oil Corp. wants its 110,000 b/d El Dorado, Kan., refinery. Together, the plants constitute about half of

Equilon Enterprises LLC has signed letters of intent to divest two of its Midwest U.S. refineries. The move is interesting in that it will focus Equilon's operations more on marketing than on refining, while doing the opposite for one of the buyers, Clark USA Inc. of St. Louis.

Clark plans to buy Equilon's 295,000 b/d Wood River, Ill., plant, while Houston-based Frontier Oil Corp. wants its 110,000 b/d El Dorado, Kan., refinery. Together, the plants constitute about half of Equilon's refining capacity.

With regard to the deal with Frontier, Equilon Pres. and CEO Jim Morgan said, "The proposed sale is part of Equilon's continuing effort to restructure its assets to improve financial returns and to accelerate growth."

Equilon is one of two joint ventures formed by Shell Oil Co. and Texaco Inc. to operate their U.S. refining and marketing assets (OGJ, Dec. 29, 1997, p. 24). It will now undertake detailed discussions with Frontier and Clark, with the goal of closing both sales by yearend.

Equilon intends to enter into long-term supply and product offtake agreements with both companies if the planned transactions are finalized.

Clark deals

In addition to the planned sale of its Wood River refinery to Clark, Equilon also has signed a letter of intent to purchase 12 of Clark's refined products terminals.

The terminals are in Illinois, Wisconsin, Indiana, Ohio, Michigan, Missouri, and Texas and constitute the majority of Clarks' terminal network.

Clark says, under the deal, it would retain distribution rights through the terminals and acquire access to Equilon's terminal network: "This transaction would broaden Clark's distribution capability, allowing it to further grow its wholesale business."

"These two actions (with Clark) demonstrate Equilon's active management of its asset portfolio, which includes maintaining a strong competitive position in the Midcontinent region," said Morgan.

Equilon said that, while it is offloading about half of its refining capacity in the region, it will focus on expanding its marketing, terminal, pipeline, lubricants, and trading businesses there.

For Clark, the deal bolsters its refining operations in Illinois, where it already owns two refineries: a 76,000 b/d plant at Blue Island and a 678,000 b/d plant at Hartford.P "This refinery is a world-class asset that fits well into our existing refining network," said William C. Rusnack, president and CEO of Clark. "It is directly adjacent to our Hartford, Ill., refinery, providing the opportunity for significant synergy and productivity improvements."

The deal also furthers Clark's move-the reverse of Equilon's-to increase its refining operations and reduce its marketing holdings. Clark separated the two sectors early this year (OGJ, Mar. 1, 1999, Newsletter) and in May signed a definitive agreement to sell its retail marketing assets to Apollo Management LP for $230 million.

Clark has expanded its refining network considerably in the past few years, acquiring Chevron Corp.'s Port Arthur, Tex., refinery in 1995 and British Petroleum plc's Lima, Ohio, refinery last year.

Frontier acquisition

Frontier says it will acquire Equilon's El Dorado refinery for about $170 million, "plus a contingency payment of up to $40 million, to be paid over the nex 8 years, if cash flow generated by theellipserefinery exceeds certain thresholds."

It will also purchase certain inventories in place at the refinery at the time the deal closes.

Frontier operates a 41,000 b/d refinery at Cheyenne, Wyo., and markets its products mostly along the eastern slope of the Rocky Mountains. Its marketing operations are centered on Denver.

"The El Dorado refinery also serves the Denver market via pipeline and additionally serves Kansas City and other important markets in the Plains states," said Frontier.

Copyright 1999 Oil & Gas Journal. All Rights Reserved.