FTC provides 'practical framework' for Texaco divestitures

Sept. 10, 2001
The US Federal Trade Commission's consent order for the $35 billion merger of Chevron Corp. and Texaco Inc. also provides "a practical framework" for units of Shell Oil Co. and Saudi Arabian Oil Co. to acquire Texaco's interests in Equilon Enterprises LLC and Motiva Enterprises LLC, officials said.

By the OGJ Online Staff

HOUSTON, Sept. 10 -- The US Federal Trade Commission's consent order for the $35 billion merger of Chevron Corp. and Texaco Inc. also provides "a practical framework" for units of Shell Oil Co. and Saudi Arabian Oil Co. to acquire Texaco's interests in Equilon Enterprises LLC and Motiva Enterprises LLC, officials said.

Meanwhile, Avfuel Corp. of Ann Arbor, Mich., the leading US independent supplier of aviation fuels and services, agreed to buy Texaco's general aviation business in California, Alaska, Washington, Idaho, Nevada, Oregon, Utah, Arizona, Louisiana, Mississippi, Alabama, Georgia, Florida, and Tennessee.

Divestiture of that portion of Texaco's general aviation business also satisfies a requirement under the FTC's consent order.

The FTC order that was announced Friday (OGJ Online, Sept. 7, 2001) will permit Shell Oil Products Co. LLC and Saudi Refining Inc. (SRI) to "complete a financially sound acquisition of the Texaco interest in Motiva and for Shell to acquire Texaco's interest in Equilon," said Shell and Saudi Arabian officials in a joint statement issued over the weekend.

The order, to which both Chevron and Texaco agreed, stipulated that Texaco first must divest its interests in Motiva and Equilon, which were created in 1998 through combination of the US refining and marketing businesses of Shell, Texaco, and Star Enterprises, a joint venture between Texaco and SRI. Shell and Texaco own 56% and 44%, respectively, of Equilon, while Shell, Texaco, and SRI own about a third each of Motiva.

"Shell and SRI remain the natural buyers of Texaco's interests and we remain open to discussions with Texaco to accomplish these acquisitions," officials said Sunday.

Although the three companies have been negotiating for months, Texaco apparently has not yet agreed on a price for its interests in the two joint ventures (OGJ Online, June 1, 2001). The book value for Equilon and Motiva was estimated at some $2.8 billion at the end of June.

To prevent negotiations for those downstream operations from being drawn out indefinitely, the order provides for an independent trustee to complete the sale of Texaco's interests within 8 months of the merger at no minimum price.

"We are also prepared to negotiate directly with the divestiture trustee in order to acquire those interests on terms that provide us with a fair return on our respective investments. We plan to complete this process in a manner that is most beneficial to the businesses," Shell and SRI said in their joint statement.

Motiva refines and markets petroleum products in the eastern and Gulf Coast areas of the US under the Texaco and Shell brands. Motiva has a total refining capacity of some 800,000 b/d. SRI sells approximately 450,000 b/d of crude to the joint venture.

Shell Oil Products Co. holds the equity interest of Equilon, Motiva, and the Deer Park Refining Limited Partnership.

Avfuel expects to complete its acquisition of Texaco's general aviation fuel business shortly after the merger with Chevron.

It will be Avfuel's seventh aviation acquisition and the fourth public company division to be incorporated into Avfuel in a string of acquisitions began over a decade ago, said company officials.

Avfuel was founded in the early 1970s and has grown from a regional supplier to a major international presence through aggressive acquisitions and marketing alliances with other companies, officials said.

"The acquisition of this portion of Texaco's General Aviation business takes Avfuel Corp. up to the next level in its mission to become an undisputed global leader in general aviation," said Craig R. Sincock, president.

As part of the transition, Avfuel recruited several executives of Texaco Aviation Products LLC, including Ron Grundstein, current vice-president and North American general manager; Frank Dellapenta, vice-president; and four regional account managers.

The merger of Chevron and Texaco into ChevronTexaco Corp. would created the third largest US oil and gas producer, with production of 1.1 million boe/d. The new company also would hold the nation's third largest reserve position, with 4.2 billion boe of proved reserves.