Yahoo Finance Shell clinches £1.8bn from Saudi Aramco in US refinery break-up
Royal Dutch Shell has secured $2.2bn (£1.8bn) from Saudi Aramco following a year of tense talks over the break-up of the pair’s Motiva refinery joint venture.
The binding agreement effectively dismantles an almost two-decade long 50:50 partnership between the oil giants as Shell seeks to shake up its global assets.
Saudi Aramco will keep Motiva’s largest refinery, a 600,000-barrel a day plant in Port Arthur in Texas, as well as 24 distribution terminals. Shell will take two smaller refineries in the US state of Louisiana, each capable of refining between 230,000 to 235,000 barrels of oil a day.
Saudi Aramco’s higher-than-expected payment for its larger share of the Motiva business will be made up of cash and debt. The Saudi Kingdom’s national oil company will take on nearly all of Motiva’s $3.2bn of debt, including Shell’s $1.5bn share, and make a $700m cash payment to its former joint venture partner.
The deal is the latest high-profile asset sale from the Anglo-Dutch giant as it looks to raise $30bn in divestments following its £34bn takeover of BG Group last year.
Analysts at Barclays Capital have said that Shell’s primary reason to separate the assets was not to reduce net debt but rather to increase profitability.
“The separation will provide Shell with much greater control and flexibility of its crude and product slate, as well as resulting in greater integration with the rest of its downstream assets in North America,” the bank said.
For Saudi Aramco the deal to take sole control of Motiva’s largest refinery is a key part of its strategy to grow its refinery footprint to ensure a market for its crude, which accounts for one in every eight barrels of the world's oil supply.
Abdulaziz Al-Judaimi, a senior vice president at Saudi Aramco said: “Motiva is a strong competitor among US refiners, and we value this important link with the dynamic US energy sector. Our intent is to continue providing Motiva with strong financial support as it transitions into a stand-alone downstream affiliate.”
Saudi Aramco, through Motiva, will hold onto the exclusive right to sell Shell-branded gasoline and diesel in the US states of Georgia, North Carolina, South Carolina, Virginia, Maryland and Washington, DC, as well as the eastern half of Texas and most of Florida.
Shell’s markets will be Alabama, Mississippi, Tennessee, Louisiana, the reminder of Florida panhandle, and the Northeastern region of the US.
Shell’s plans to break up the Motiva venture were first made public in March 2016 and were initially expected to conclude by October in a $2bn deal, but it was delayed by disagreements over the cost.
The deal is expected to close in the second quarter of this year.
