Completion of the sale would allow Shell to fulfill the most significant condition of its acquisition last year of Pennzoil-Quaker State Co. and would introduce a new supplier to the U.S. base oil market. Lubricant blenders are crossing their fingers that the deal will at least preserve availability of Group II stocks.

Certainly the thing that matters to our members is that these barrels make it to market, said Jeffrey L. Leiter, counsel for the Independent Lubricant Manufacturers Association. Availability of Group II is already an issue and its going to become even more of an issue with GF-4. GF-4, the next passenger car motor oil upgrade, is currently being drafted, with initial licensing by the American Petroleum Institute proposed for May 2004. Most observers agree it will cause a further shift in base oil demand from Group I to Group II.

The Federal Trade Commissions Sept. 27, 2002,settlement requiring the divestiture gave Shell a year to sell its stake. Thomas R. Reilly, the trustee placed in charge of the stake for that time period, said last week that the sale should be completed two months early.

Its expected to close by the end of July, he said. Reilly is a consultant with LECG, a firm based in Emeryville, Calif. Shell and Flint Hills Resources declined to comment.

Before the Shell acquisition of Pennzoil-Quaker State, Excel Paralubes was a 50-50 joint venture between ConocoPhillips and Pennzoil-Quaker State. The ventures base oil refinery, located in Westlake, La., is the second-largest base oil plant in the Western Hemisphere, with capacity to produce 21,300 barrels per day of Group II.

The Federal Trade Commission balked at the prospect of Shell acquiring Pennzoil-Quaker States share of capacity, saying Shell would then control too much of the U.S. market for Group II. Shell is already managing partner in Motiva Enterprises LLC, a 50-50 joint venture with Saudi Refining Inc. that owns a 22,000-b/d Group II plant in Port Arthur, Texas. It controls additional Group II barrels through a 10-year purchase agreement that Pennzoil-Quaker State signed with ExxonMobil in 2000.

In requiring the divestiture, the commission told Shell it could not sell its stake to ConocoPhillips or any other existing major supplier. Shell seemed to meet that demand when it announced in May that it wanted to sell to Flint Hills Resources, a subsidiary of Wichita, Kansas-based Koch Industries. Koch produces and trades petroleum products and chemicals, but has never been in the base oil business.

ILMA generally applauded the proposal to sell to Flint Hills Resources but raised one concern. The commission allowed Shell to enter a one-year agreement to buy base oil from the purchaser of its stake, but prohibited such an agreement from lasting beyond one year. ILMA noted that Flint Hills Resources, as a large pipeline manager, uses a significant quantity of lubricants, some of which are produced by Shell. In a June 23 letter, it asked the commission to prohibit Flint Hills Resources from trading base oil for finished lubes.

Leiter said Monday that ILMA received no response from the commission. He added that the association has received no indication of any such trading agreement.

Im an optimist, Leiter said, so Im hoping that it will turn out all right.