Mergers & Acquisitions

Shell-Motiva Deal Divides Up Downstream

Agreements dismantle joint venture in favor of separate geographic ownership

THE HAGUE, Netherlands -- Moving forward a deal that allows each company to focus on its own downstream business, Royal Dutch Shell PLC has signed binding definitive agreements with SOPC Holdings East LLC and Saudi Refining Inc. that gives full ownership of refining and marketing joint venture (JV) Motiva Enterprises LLC to Saudi Refining.

SOPC Holdings East is a U.S. downstream subsidiary of Shell, and Saudi Refining is a wholly owned subsidiary of Saudi Arabian Oil Co., Saudi Aramco.

Deal Structure

As laid out in the nonbinding letter of intent that the JV partners signed in March 2016, both companies have evaluated their options, and they have negotiated an “optimal” deal structure to divide and transfer Motiva's assets, liabilities and businesses between the companies.

The companies have divided distribution terminals, retail assets, branded and commercial customer agreements by geography in a way “to ensure each partner has an integrated and robust business,” they said.

Saudi Refining will assume full ownership of Motiva, including the refinery at Port Arthur, Texas, and 24 distribution terminals. Motiva will have the right to exclusively sell Shell-branded gasoline and diesel in Georgia, North Carolina, South Carolina, Virginia, Maryland and Washington, D.C., as well as the eastern half of Texas and most of Florida.

Shell will assume sole ownership of the Norco, La., refinery, the Convent, La., refinery, 11 distribution terminals, and Shell-branded markets in Alabama, Mississippi, Tennessee, Louisiana, a portion of the Florida Panhandle and the Northeastern United States. These assets will be fully integrated with Shell's downstream business in North America.

"A simplified, integrated business structure will emerge from this deal for us in the United States and that's consistent with the stated goal of making Shell a world-class investment opportunity,” said John Abbott, Shell downstream director. “We have today created a set of assets that plays to our strengths. This portfolio upgrade will increase optionality and strengthen Shell's downstream business."

Abdulaziz Al-Judaimi, senior vice president of downstream for Saudi Aramco, said, “This transaction is well aligned with Aramco's global downstream strategy. Motiva is a strong competitor among U.S. refiners, and we value this important link with the dynamic U.S. energy sector. Our intent is to continue providing Motiva with strong financial support as it transitions into a stand-alone downstream affiliate."

Deal Details

The parties have agreed on a balancing payment of $2.2 billion, subject to adjustments including for working capital. This value will be satisfied by a combination of SRI assuming more than its 50% share of Motiva's net debt on completion and a cash payment for the balance.

As of Dec. 31, 2016, Motiva's total net debt was $3.2 billion, of which Shell will assume $100 million, resulting in a deduction to the cash portion of the balancing payment of $1.5 billion.

The companies said they expect the transaction, subject to regulatory approval, to close in the second quarter of 2017.

Based in Houston, Motiva refines, distributes and markets petroleum products. With three refineries in the U.S. Gulf Coast region, Motiva has a combined capacity of more than 1.1 million barrels per day. The company's marketing operations support a network of approximately 8,400 Shell-branded gas stations and convenience stores in the Eastern and Southern United States.

In February 2016, Motiva and Phillips 66 signed an exclusive, long-term brand license agreement for the 76 brand covering the 26 eastern and Gulf Coast states of Motiva’s operating territory. Owned by Phillips 66, the 76 brand supplies fuel to more than 1,800 gas stations in the United States.

Royal Dutch Shell, based in The Hague, Netherlands, is a global group of energy and petrochemical companies with operations in more than 70 countries. In the United States, Houston-based Shell operates in all 50 states.

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