Shell finalizes sale of Japanese refining assets

Dec. 19, 2016
Royal Dutch Shell PLC has completed the previously announced sale of nearly all its interest in Japanese refiner Showa Shell Sekiyu KK as part of the company’s ongoing strategy to reduce its downstream refining assets.

Royal Dutch Shell PLC has completed the previously announced sale of nearly all its interest in Japanese refiner Showa Shell Sekiyu KK as part of the company’s ongoing strategy to reduce its downstream refining assets (OGJ Online, July 30, 2015).

Following recent antitrust approval from the Japan Fair Trade Commission, Shell finalized the sale of its 31.2% shareholding in Showa Shell Sekiyu to Idemitsu Kosan Co. Ltd. on Dec. 19 for a total amount of $1.4 billion, Shell said.

Initially scheduled to acquire about 33.3%, or 125,261,200 shares, of Shell’s interest in Showa Shell, Idemitsu Kosan instead acquired 31.3% interest, or 117,761,200 shares, following an amendment to the purchase agreement, the Japanese operator said.

The deal amendment takes into account “the spirit of the tender offer regulations to the fullest extent,” said Idemitsu Kosan, without adding further details.

According to initial terms of the proposed sale, Shell, through its subsidiary Anglo-Saxon Petroleum Co. Ltd., planned to retain a 1.8% ownership interest in Showa Shell Sekiyu.

Shell said the sale—which includes the Dutch operator’s majority ownership in Showa Shell Sekiyu’s three Japanese refineries—aligns with the company’s strategy to concentrate its downstream footprint on a smaller number of assets and markets where it can be most competitive.

Shell, however, reiterated its commitment to continuing to do business in Japan, which remains an important LNG market for the company’s upstream integrated gas business.

The Showa Shell divestment follows the company’s flurry of recent downstream selloffs, the most recent of which involves the pending $80-million sale of its Danish subsidiary AS Dansk Shell—including the 70,000-b/d Fredericia refinery, local trading and supply activities, as well as long-term purchase and sales agreements for refinery feedstocks and finished products—to Dansk Olieselskab APS in a deal that will end Shell’s downstream presence in Denmark (OGJ Online, Sept. 15, 2016).

Shell’s other recent downstream divestments include the sale of its downstream businesses in Australia and Italy, a number of UK retail sites, and the initial public offering of and further drop downs to Shell Midstream Partners LP (OGJ Online, Feb. 21, 2014).

The company also entered a deal to sell its majority interest in Shell Refining Co. (FOM) Bhd., including the 125,000-b/d refinery in Port Dickson, Malaysia, to a subsidiary of China’s Shandong Hengyuan Petrochemical Co. Ltd., Shandong, by yearend (OGJ Online, Feb. 1, 2016).

Delayed merger

For Idemitsu Kosan, acquisition of Shell’s Showa Shell shares comes as an important step in the proposed merger of the two Japanese refining and marketing companies.

As part of the planned merger, Idemitsu Kosan and Showa Shell, both of Tokyo, would integrate their businesses to establish a newly named single company well-equipped to compete as a long-term, dominant player in Japan’s domestic refining and petrochemical markets, according to a memorandum of understanding signed buy the companies in November 2015.

The new company, yet to be named, would be equally owned and headquartered outside of Tokyo, Idemitsu Kosan said.

Previously scheduled to take place by Apr. 1, 2017, the planned merger has been delayed indefinitely following unidentified difficulties in consultations with some stakeholders, according to an Oct. 13 release from Idemitsu Kosan.

Idemitsu Kosan operates three refineries in Japan, including the 175,000-b/d Aichi refinery, the 200,000-b/d Chiba refinery, and the 160,000-b/d Hokkaido refinery.

Showa Shell Sekiyu holds the majority interest in three subsidiary-run refineries in Japan that have a combined crude oil processing capacity of 445,000 b/d, including:

• Toa Oil Co. Ltd.’s 70,000-b/d Keihin refinery, in Kawasaki, Kanagawa prefecture.

• Showa Yokkaichi Sekiyu Co. Ltd.’s 255,000-b/d Yokkaichi refinery, in Yokkaichi, Mie prefecture.

• Seibu Oil Co. Ltd.’s 120,000-b/d Yamaguchi refinery, in Ube, Yamaguchi prefecture.

Contact Robert Brelsford at [email protected].