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Saudi Aramco to Pay Shell $2.2 Billion in Refinery Breakup

by Javier Blas, Joe Carroll, and Margot Habiby: 7 March 2017

Saudi Arabian Oil Co. will pay Royal Dutch Shell Plc $2.2 billion including debt to finalize the breakup of a 19-year refining partnership known as Motiva Enterprises LLC.Saudi Aramco’s Saudi Refining unit will take full ownership of the Motiva Enterprises name and legal entity, including the largest refinery in the U.S. at Port Arthur in Texas, and 24 distribution terminals, according to a joint statement. Shell will take sole ownership of the Norco and Convent refineries in Louisiana and 11 distribution terminals.

Aramco will make a $2.2 billion balancing payment, split between debt and cash and subject to adjustments including working capital, Shell said in a separate statement. Aramco will assume almost all of Motiva’s $3.2 billion of net debt, including $1.5 billion of Shell’s share. A cash payment will cover the balance, Shell said. The arrangement will also take the Anglo-Dutch company closer to its target of selling $30 billion of assets in the three years to 2018.

“Motiva is a strong competitor among U.S. refiners, and we value this important link with the dynamic U.S. energy sector,” said Abdulaziz Al-Judaimi, senior vice president of Aramco’s downstream business. “Our intent is to continue providing Motiva with strong financial support as it transitions into a stand-alone downstream affiliate.”

The transaction is subject to regulatory approval and expected to close in the second quarter, the companies said. Shell and Aramco agreed last year to end the Motiva venture, which oversaw the three oil refineries as well as fuel terminals and fuel-branding rights in multiple U.S. states.

U.S. Split

Under the agreement, Motiva will have the exclusive right to sell Shell-branded gasoline and diesel in Georgia, North Carolina, South Carolina, Virginia, Maryland and Washington, D.C., as well as the eastern half of Texas and most of Florida. Shell’s markets will be Alabama, Mississippi, Tennessee, Louisiana, a portion of the Florida panhandle, and the Northeastern region of the U.S.

Motiva, formed in 1998, was a major player in U.S. refining with capacity to process more than 1.1 million barrels of crude a day. But it was plagued by cost overruns and construction delays that eroded profits, Fadel Gheit, an analyst at Oppenheimer & Co., said in March 2016. The 600,000-barrel-a-day Port Arthur refinery suffered leaks and fires that delayed a $10 billion expansion to double the size of the plant.

A former partner in Motiva, Chevron Corp., exited the partnership in 2002 as part of a settlement with regulators that allowed it to acquire Texaco Inc. Chevron’s divestment left Shell and the Saudis as 50-50 partners in the venture.

Shell’s divestment plan is aimed at reducing debt that rose following the $54 billion acquisition of BG Group Plc. The company sold $5 billion of assets last year, has announced a further $7.2 billion of sales, including the Motiva split, and is working on an additional $2.8 billion of disposals, according to Shell.

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