Riyadh-owned Saudi Aramco and Royal Dutch Shell have belatedly finalised the terms of separation of their US-based Motiva Enterprises downstream joint venture. The news comes after a year of negotiations over compensation to be paid by the Saudi parastatal for retaining the larger portion of the assets.
While relations between the partners had been tense for several years, the decision to end the 19-year-old partnership reflected the aim of both companies to gain greater control over their respective operations in order to pursue contrasting corporate goals.
Aramco, which will gain full control over the US’ largest refinery, is aiming to nearly double global downstream capacity over the next decade.
In the shorter term, it is seeking to finalise or otherwise progress the various international refining tie-ups on the table ahead of the firm’s landmark initial public offering (IPO) due next year.
In late February, a long-mooted Malaysian development was agreed, while two putative Indonesian investments were reported to have been abandoned.
The assets allocated to each party under the agreements signed on March 7 between Saudi Refining and Shell subsidiary SOPC Holdings East for the “separation of Motiva’s assets, liabilities and businesses” differed little from those provisionally apportioned when the deal was first announced in March 2016.
Crucially, the Saudi firm gains control over the 600,000 bpd Port Arthur refinery in Texas – not only the country’s biggest but also able to process heavier, sourer Saudi crude grades unsuitable for less sophisticated facilities elsewhere.
Shell will take control of two Louisiana refineries with combined capacity of 465,000 bpd.
Each party is allocated the associated distribution terminals, retail assets and branding rights to maintain a geographically coherent operation.
Aramco was allotted 24 distribution terminals with total storage capacity of 11.1 million barrels supplying 5,300 Shell-branded service stations and exclusive right to sell Shell-branded gasoline and diesel across various southern states. The Saudi firm will also retain ownership of the Motiva legal entity and brand name.
The sticking point delaying the deal – initially envisaged to have been signed by the end of last year – was reported to have been the sum to be paid by Aramco for its larger portion of the equally owned Motiva business’s assets.
Tellingly, the Saudi firm’s announcement of the deal made no mention of financial terms – which left the company paying considerably more than had been expected – with the Shell statement by contrast declining to outline the division of assets while spelling out the monetary settlement.
Aramco is to make a “balancing payment” of US$2.2 billion through taking on US$3.1 billion of Motiva’s total debt of US$3.2 billion and paying Shell supplemented by a cash payment of US$700 million. The transaction is due to close during the second quarter.
Motiva was created in 1998, with Aramco and Shell becoming sole owners in 2002. Relations soured somewhat during the expansion of the Port Arthur refinery, which suffered delays and cost overruns, while the parties’ immediate priorities were assumed to have spurred the decision to terminate the partnership.
Shell is in the midst of a US$30 billion programme of asset sales while Aramco is aiming to increase control over its international assets at the same time as it is targeting an expansion of global refining capacity to 8-10 million bpd by 2025 from 5.4 million bpd at present.
“We fully support Motiva’s transition to a stand-alone integrated downstream provider of energy and with its strategic position, I am confident it will enable new opportunities for growth in the US energy sector,” CEO Amin Nasser claimed in a statement.
Aramco’s desire to solidify its international investment plans also manifested in an agreement in late February to proceed with its largest overseas refining investment to date, signing a deal with Petronas for the so-called Refinery & Petrochemical Integrated Development (RAPID) project in Malaysia.
The deal, expected to entail investment of US$7 billion by Aramco, is part of the wider move to create greater certainly for potential investors ahead the company’s planned IPO in the latter part of next year.
The scheme covers construction of a 300,000 bpd refinery and a chemicals plant with capacity of around 3.5 million tpy, due for completion in 2019.
The deal was signed at the start of a regional tour by King Salman. His subsequent visit to Indonesia prompted restatement of plans under an agreement signed in December for Aramco and Jakarta-owned Pertamina to own, operate, upgrade and expand from 320,000 bpd to 400,000 bpd the Cilacap refinery in Central Java.
However, no progress was made towards consummation of deals for the Saudi firm to invest in the upgrades of either the Balongan refinery in West Java or the Dumail facility in Sumatra. Memoranda of understanding (MoUs) were signed granting the company exclusive negotiating rights in December 2014.
According to reports in the Indonesian press in January, feedstock issues have forced an abandonment of the proposed Saudi involvement.
From NewsBase's DMEA monitor