After Motiva Split, Saudi Aramco Aims to Buy more U.S. Refineries

Graphic for News Item: After Motiva Split, Saudi Aramco Aims to Buy more U.S. Refineries

Saudi Arabia’s national oil company wants to buy more U.S. refining and chemical plants to expand its footprint in the world’s largest energy market once the break-up of its joint venture with Royal Dutch Shell Plc is complete, sources said.

Ending an often rocky nearly 20-year relationship, Shell (RDSa.L) and Saudi Aramco [SDABO.UL] announced on Wednesday plans to break up Motiva Enterprises LLC [MOTIV.UL] after almost two decades, dividing its assets and leaving Aramco with one plant, the nation’s largest crude oil refinery, in Port Arthur, Texas.

Officials from Saudi Refining, the downstream arm of Aramco, told employees following the announcement that the state-owned firm was intent on buying more assets once the Motiva break-up is finished, according to five people who attended the briefing and asked not to be identified due to the sensitivity of the issue.

The officials did not identify possible acquisition targets, the sources said.

An Aramco representative was not immediately available to discuss the company’s plans.

A Shell spokeswoman directed questions to Aramco.

The plan comes as Aramco considers a landmark public offering of its vast downstream operations, which amount to nearly 5.5 million bpd of solely or jointly owned refining capacity around the world.

It also underscores the company’s desire to expand its footprint in major markets, helping guarantee demand for its crude oil exports amid intensifying global competition.

The breakup is unlikely to have any immediate impact on sales of Saudi crude to the United States, Saudi Arabia’s third-largest customer and a strategic security partner.

Under the deal, Aramco would gain full control of the 603,000 barrel-per-day Port Arthur refinery. Shell will get two smaller Louisiana plants, which have a combined crude oil refining capacity of throughput 473,00 bpd last year, according to U.S. government data.

ROCKY MARRIAGE

Sources said this week’s announcement was the result of years-long and sometimes fractious negotiations between the two partners over the future of their joint venture.

The two partners began talks in 2014, four years ahead of the expiration of the 20-year partnership agreement that became Motiva, the sources said.

Saudi wanted to take all three Motiva refineries and acquire Shell’s chemical plant in Norco, Louisiana, but Shell refused to give up the Norco chemical plant and adjoining Motiva refinery that supplies it, they said.

“They want to acquire refineries,” one of the sources said. “They want to get into chemicals. They want to expand and Shell doesn’t.”

Shell’s reluctance to give up the refineries and chemical plant underscores the financial and strategic value of the plants as it pushes ahead with a large $30 billion asset sale program.

Shell expects to complete the split some time this year pending necessary regulatory approvals, according to an internal memo from John Hollowell, chief executive of Shell Midstream Partners LP (SHLX.N), Shell’s pipeline master limited partnership.

The companies intend to start running their respective independent businesses “as quickly, efficiently and safely as possible”, it said.

The letter of intent was released on Wednesday because talks had progressed to the point that more-detailed discussions were necessary and those could not go forward without making the negotiations public, the sources said.

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