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Thu 17 Mar 2016 09:52 AM

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Break up of Motiva JV hands Saudi Aramco control of biggest US refinery

Royal Dutch Shell and Saudi Aramco plan to divide up assets in break

Break up of Motiva JV hands Saudi Aramco control of biggest US refinery
Saudi Aramco (Getty Images)

Royal Dutch Shell and Saudi Aramco have announced plans to break up Motiva Enterprises LLC in a deal that ends a partnership of nearly two decades and hands control of the biggest US refinery to the Saudi state oil giant.

News that the two energy companies will divide assets in their oil refining and marketing joint venture had been expected by many as they navigated an often-frayed relationship where their respective interests sometimes diverged.

An early sign of a pending breakup emerged last summer when Motiva announced plans to set up its own oil products trading operation separate from Shell. The desk started up in January.

The divorce also comes as the Saudi government considers selling shares in the world’s largest oil firm.

Abdulrahman Al-Wuhaib, senior vice president of downstream at Saudi Aramco, said in a statement on Wednesday that the joint venture formed in 1998 served the partners' downstream business objectives "very well for many years."

"It is now time for the partners to pursue their independent downstream goals," he said.

A US spokesman for The Hague-based Royal Dutch Shell said the breakup and split of Motiva's assets were consistent with Shell's plans to simplify its global portfolio.

Motiva's three refineries in the US Gulf Coast region have a combined capacity of over 1.1 million barrels per day, located within a 120-mile (195-km) radius of one another. The marketing operations support a network of about 8,300 Shell-branded gasoline stations in the Eastern and Southern United States.

Royal Dutch Shell. (Getty Images)

The partners said that under the terms of a non-binding letter of intent, Aramco would take over the Port Arthur, Texas, refinery and retain 26 distribution terminals as well as the Motiva name.

It will also have an exclusive license to use the Shell brand for gasoline and diesel sales in Texas, the majority of the Mississippi Valley, the Southeast and Mid-Atlantic markets, it said.

Shell will solely own the Louisiana refineries in Convent and Norco, where it also operates a chemicals plant, as well as Shell-branded gasoline stations in Florida, Louisiana and the Northeastern region.

A Shell spokesman said the company would move forward with Motiva's plan to integrate the Louisiana refineries to operate as a single 500,000-bpd plant.

While sources close to the situation say the relationship between Shell and Aramco has been troubled, that tension grew after an ambitious $10 billion expansion of Motiva's flagship Port Arthur refinery. The project doubled its size to 603,000 barrels a day and surpassed Exxon Mobil Corp's Baytown, Texas, plant as the country's largest.

A disastrous leak of caustic fluid in a new unit crippled the plant shortly after top executives from Shell and Aramco unveiled the expansion in May 2012, upping the cost that already had ballooned from $5 billion.

"That was a continuation of the bad blood," said a person familiar with the relationship.

In February 2014, Motiva hired Dan Romasko, who had been the top operations executive at refiner Tesoro Corp (TSO.N), to replace former top Shell trading executive Bob Pease as chief executive.

Romasko told Reuters in an interview a year ago that Motiva was "coming into its own" after the company announced plans to integrate the two Louisiana refineries.

Sources familiar with the relationship also said Aramco was said to be angry at Shell when refinery workers at the three Motiva plants went on strike in early 2015.

Shell led negotiations with the United Steelworkers union representing the workers, and the strike ended three weeks after the Motiva walkout.

How the companies have split up the assets:

SHELL:

* 230,000 barrel-per-day Convent refinery located in St. James Parish, Louisiana;

* 235,000 bpd Norco refinery located in St. Charles Parish, Louisiana, where Shell already operates a chemicals plant;

* Nine distribution terminals;

* Retain Shell-branded markets in Florida, Louisiana and the Northeastern region.

ARAMCO:

* 600,000 bpd Port Arthur refinery located in Port Arthur, Texas, the biggest refinery in the United States;

* The Motiva name;

* 26 distribution terminals;

* Exclusive license to use the Shell brand for gasoline and diesel sales in Texas, the majority of the Mississippi Valley, the Southeast and Mid-Atlantic markets;

* Exclusive use of the Shell brand through a long-term license agreement in its area of operation.

The two companies also cooperate in the following ventures:

* Saudi Aramco Shell Refinery Co (SASREF) - a 50:50 joint venture refining enterprise at Jubail Industrial City in Saudi Arabia with a crude oil refining capacity of 305,000 bpd

* Shell and Saudi Aramco have a multi-year relationship in the Showa joint venture in Japan

* Shell recently reached an agreement to sell shares representing a 33.24 percent stake in Showa to Idemitsu Kosan. Shell will retain a 1.80 percent holding in the company after completion later this year.

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