Saudi Arabian Oil Co. and Shell plan to separate the assets of Motiva, with its API Group II base oil plant in Texas becoming solely owned by Saudi Arabian Oil. Industry observers expect little impact on the base oil side.
Saudi Arabian Oil Co. and Royal Dutch Shell announced last week that their affiliates had signed a non-binding letter of agreement to divide the assets of Motiva Enterprises LLC. The joint venture was formed in 1998 and has operated as a 50-50 refining and marketing joint venture since 2002. Under the letter, the partners will evaluate options and select an optimal deal structure with the objective of formalizing a definitive agreement to divide and transfer Motivas assets, liabilities and employees between the companies.
Saudi Aramco affiliate Saudi Refining Inc. would own and operate the 600,000 barrels per day Port Arthur, Texas, rerefinery, including its 40,300 barrel per day API Group II base oil plant.
The base oil manufacturing plant is part of the Port Arthur Refinery and is included in the list of proposed assets that SRI will assume sole ownership of once the transaction closes, a Shell spokesperson told Lube Report in an emailed statement. However, the Port Arthur Refinery has been just one of the many base oil suppliers for Shells growing base oil business in North America. Shell will continue to be a major purchaser of base oil to support its growing finished lubricants business.
Amy Claxton, principal of consultancy My Energy in Hummelstown, Pa., said it is likely that Motiva base oil output will continue in an uninterrupted fashion, or even improve in terms of yield and volumes. In the past two years, Motiva ran light tight oils, also known as shale crudes, in their [feedstock] mix, which lowered the refinery’s overall raw materials cost but which also led to lower base oil yields, Claxton told Lube Report. With Saudi Aramco ownership, it would be highly unlikely that tight oil – shale crude – runs would continue at Port Arthur.
She noted that the planned asset division was required as both entities pursue separate financial goals.
Saudi Aramco had announced they were considering an [initial public stock offering], and thus wanted full ownership of assets to include in any potential stock market listing, Claxton said. In addition, Saudi Aramco wants full control over the crude runs at Motiva Port Arthur, to continue and even increase the amount of Saudi crudes run at this location. From Shells side, they have announced a three-year plan to sell $30 billion worth of assets. Outright ownership of the two oil refineries that dont have base oil plants – Norco and Convent – allows Shell to include one or both of these refineries in a sales portfolio, she added. Motiva owns oil refineries in Norco and Convent, Louisiana.
Consultant Geeta S. Agashe, president of Geeta Agashe & Associates LLC, said the assets separation has nothing to do with the Motiva base oil operation, which she believes wont be significantly impacted. Motiva is professionally run and operated, and I doubt anything will change, Agashe told Lube Report. Of course, Saudi Aramco’s footprint in the base oils business grows.
She cited a Reuters report indicating the relationship between Shell and Saudi Aramco started to fray after Motiva announced a $10 billion expansion of the Port Arthur refinery, doubling its capacity to 603,000 barrels per day and making it Americas largest refinery. Costs ballooned because of a leak that occurred shortly after the expansion was completed in 2012, the article reported, exacerbating tension between Shell and Aramco, and a workers strike in 2015 also sparked anger between the companies.
With low oil prices, Agashe added, Shell will be glad to get some cash. The sale raises funds when it is making further cuts to capital investment this year as it expects a downturn in oil prices to last for several years, she said. Shell reported a 37 percent drop in second-quarter profits and said it expected $30 billion of asset sales between 2016 and 2018, on top of a total of $20 billion in disposals for 2014 and 2015 combined.
She recalled that Shell last year also announced plans to sell its 33.2 percent stake in Showa Shell in Japan for $1.4 billion to Idemitsu Kosan. I think Shell has done a strategic review of their assets, and these moves are a result of their findings, Agashe said, adding that Saudi Aramcos overseas company owns a 15 percent stake in Showa Shell, while Saudi Aramco supplies Arabian crude oil to all three Showa Shell refineries in Japan.
It could also pave the way for some sort of listing of Aramcos assets in a public offering, something that Saudi officials have alluded to for several months, she said. Few expect Aramco to list its upstream production assets in Saudi Arabia; downstream assets are much more likely to be offered up.
We propose to combine the assets we will retain from the joint venture with Shells other downstream assets in North America, Shell Downstream Director John Abbott said in a news release. This is consistent with both the group and downstream strategy to provide simpler and more highly integrated businesses which deliver increased cash and returns.
The Port Arthur refinery will advance Saudi Aramcos global downstream integration strategy through supply and trading, refining and fuels marketing, chemicals and base oils, Abdulrahman F. Al-Wuhaib, Saudi Aramcos senior vice president of downstream, said in a news release. Motivas employees will continue to be critical to fulfilling our future growth potential in the Americas, reinforcing our reliable customer service and supporting the communities where we operate. We fully support Motivas continuing transformation journey to become an autonomous integrated downstream affiliate.
Luberef, headquartered in Jeddah, Saudi Arabia, is a 70-30 joint venture between Saudi Aramco and Jadwa Industrial Investment Co. Luberefs Yanbual Bahr, Saudi Arabia, refinery expansion – which will add 700,000 metric tons per year of API Group II base oil and increased bright stock production – is on the verge of opening. Luberef currently operates two Group I plants on Saudi Arabias Red Sea coast, in Jeddah and Yanbu, with combined capacity of almost 560,000 t/y.
Through its subsidiary AOC, Saudi Aramco also has a 63.4 percent share of South Korean refiner S-Oil. S-Oils Onsan, South Korea, refinery has capacity to make 20,500 barrels per day of API Group III, 20,800 b/d of Group II and 500 b/d of Group I base oil.