Shell/Texaco European R&M merger off, refinery to close

Shell Europe Oil Products Ltd. (SEOP) and Texaco Inc. have abandoned plans to merge their European refining and marketing operations.

Meanwhile, Shell is on the lookout for other potential partners to strengthen its European R&M business and has slated the closure of its Sola refinery near Stavanger, Norway.

In September, Shell and Texaco announced their intention to join forces in European R&M, but analysts saw potential problems with European competition authorities and with duplication of assets (OGJ, Sept. 14, 1998, p. 30).

Paul Skinner, president of SEOP, said, "Although a joint review by teams from both companies had confirmed the synergy benefits originally envisaged, we have concluded that the proposed venture would not maximize shareholder value for both companies.

"The implementation of our own increasingly ambitious restructuring program in Europe, both in terms of the organization and the rationalization of our own downstream asset base, will continue. We will also seek future opportunities to grow our market share."

Shell said the decision to part ways was a mutual one, and that the existing joint ventures involving Shell, Texaco, and Saudi Arabian Oil Co. in the U.S. would not be affected.

Shell objectives

A Shell official told OGJ that SEOP's objective remains to be market leader or number two in each country in which it operates: "So we will continue to improve our operations, both country by country and across Europe. We are talking to other companies at the moment and are considering other alliances and joint ventures."

SEOP recently announced it intends to cut 3,000 jobs over 12-18 months beginning next year, across the board in every country in which the unit operates.

The move will shed about 20% of the work force, including redundancies stemming from the closure of the Shell Haven refinery in the U.K. and a reduction in operations at the Berre refinery in France (OGJ, Nov. 23, 1998, Newsletter).

Norwegian refinery closure

Norske Shell plans to close its Sola refinery, which is wholly owned and has crude distillation capacity of 53,000 b/d, by the beginning of 2000. The site has 125 staff, and their job losses will be part of the 3,000 total.

To make up for the loss of capacity in Norway, Norske Shell agreed with Statoil AS to exchange a 10% interest in Shell's Pernis refinery in the Netherlands for a 22% stake in Statoil's Mongstad, Norway, refinery.

Sola is SEOP's smallest main fuels refinery and processes low-sulfur North Sea oil. Shell's Pernis refinery is one of the world's 10 largest, with 400,000 b/d capacity, and can handle high-sulfur crudes. The 200,000 b/d Mongstad plant can handle low-sulfur crudes, condensate, and residues.

Carmine Falcone, vice-president of manufacturing, supply, and distribution at SEOP, said, "We are pursuing these moves as part of our plan to address our own overcapacity issue and to shift our portfolio towards world-class assets and world-scale refining."

Shell said the Sola refinery was earmarked for closure because the investment required at the plant to meet more stringent product quality requirements, due in place under European Union legislation in 2000, could not be justified.