$3.8 Billion Deal for Equilon, Motiva


In a move that was widely anticipated, Shell Oil Co. and Saudi Refining Inc. announced yesterday that they will purchase Texaco Inc.s shares in the twin U.S. downstream alliances, Equilon and Motiva. Shell and Saudi agreed to pay Texaco $2.1 billion and to assume debt and other liabilities valued at $1.7 billion.

Scheduled to be completed by the end of the year, the deal will give Shell 100 percent ownership of Equilon Enterprises LLC, including Equilon Lubricants and base oil refineries with combined capacity of 15,200 barrels per day in Deer Park, Texas, and Martinez, Calif. Shell and Saudi will each have 50 percent interest in Motiva Enterprises LLC, which includes a 22,000-b/d base oil refinery in Port Arthur, Texas. Together, Equilon and Motiva have a total of seven lubricant blending plants.

Under the terms of the transactions, Equilon and Motiva will retain non-exclusive rights to sell Havoline brand lubricants for 18 months. Those companies will also have exclusive use of the Texaco brand for the marketing of products and services at Texaco branded locations until June 2004 and then on a non-exclusive basis until June 2006.

Shell officials were not available to discuss plans for the lubricants business but the company stated that the streamlined ownership will allow Equilon and Motiva to act quicker and to operate more efficiently. Industry observers say the three-year-old joint ventures were hampered by organizational redundancy and that both Shell and Texaco have been disappointed in their performance.

The simplified structures will allow us to accelerate initiatives, already underway, which will lead to a significant improvement in our downstream performance in the U.S and enhance our global competitive position, Royal Dutch/Shell Group Oil Products Chief Executive Officer Paul Skinner said in a news release.

The deal was announced on the same day that shareholders of Texaco and Chevron Corp. approved the $39.5 billion merger of their companies. The U.S. Federal Trade Commission had required Texaco to sell its shares in Equilon and Motiva as a condition of that merger.

Texaco held a 44 percent interest in Equilon, which combined Texaco and Shells western and Midwestern refining, marketing and transportation operations, and a 32.5 percent share in Motiva, which combined the same operations in the eastern and Gulf Coast refining and marketing operations of Shell, Texaco and Saudi Refining. In order to complete its merger with Chevron, Texaco turned its shares over to a trust responsible for conducting the sale. Texaco noted that the trust will continue seeking other buyers while completing arrangements with Shell and Saudi Refining.

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