If Shell Oil Co. has to sacrifice a stake in Excel Paralubes to complete its purchase of Pennzoil-Quaker State Co., observers say it wont have a problem finding interested buyers.
According to industry sources, Shell is amenable to divesting Pennzoil-Quaker States 50-percent stake in Excel Paralubes in order to gain U.S. Federal Trade Commission approval for the merger. Shell and Pennzoil-Quaker State officials have refused to comment, and no settlement has been announced, although the companies have said they expect one in the next few weeks.
Observers describe Excel Paralubes as an attractive asset in the U.S. lubes market. ConocoPhillips owns the other half of Excel Paralubes, North Americas second-largest base oil refinery, a 21,300-barrel-per-day plant in West Lake, La.
All of the 6-year-old plants production has been Group II, but some believe a purchaser might want to upgrade to allow some production of Group II-plus stocks.
Pennzoil-Quaker State wanted Group II because it wanted to maximize the volume that it could use for its motor oils, a supplier said. But if it sold to someone who didnt have the same concern, they could start producing Group II-plus and improve the profitability, even if that meant giving up a little bit on volume.
He and other observers see a number of companies that might be interested in Pennzoil-Quaker States stake. ConocoPhillips may not be one of them, although it reportedly holds right of first refusal; the company, itself the product of a brand new merger, is seen as more interested in upstream activities.
Amongthe names bandied about as potential bidders:
- BP-Castrol:a major lubricant producer worldwide, it has no refining capacity in the United States.
- Calumet Lubricants Co.: this Indianapolis company has acquired several refineries in recent years, including two from Pennzoil-Quaker State.As it digeststhose acquisitions, it may not have theappetite for this purchase.
- Valvoline: its parent company, Ashland Inc., is a minority owner in refiner Marathon Ashland Petroleum LLC, but the partnership produces only Group I base oils, which are becoming less important to the motor oil segment. A stake in Excel Paralubes would give it captive Group II supply.
- Valero and Ergon Inc., both of which have been growing.
I think there could be a number of potential bidders, a base oil buyer said. And I think Shell would receive good value from a sale.
Base oil postings by principal U.S. suppliers were unchanged this week.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.
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