For Saudi Aramco, Breaking Up Is (Not So) Hard To Do

Saudi Aramco and Royal Dutch Shell (RDS-A) recently announced plans to end their co-ownership of the Motiva refinery in Texas. The two energy companies have operated the refining and marketing enterprise as a 50/50 joint venture since 2002. This move is significant because Motiva includes three refineries in the gulf region of the United States with combined capacities of 1.1 million barrels a day. The complex is the largest in the United States and one of the 10 largest worldwide.

In the divorce, Shell will be getting the two smaller refineries, with a combined capacity of just under 500,000 barrels a day, 9 distribution terminals, and the Shell gasoline brand in Florida, Louisiana, and the Northeast U.S. Saudi Aramco will keep the Port Arthur Refinery under the Motiva name, 26 distribution terminals, and an exclusive license to use the Shell gasoline brand in Texas, Mississippi, the Southeast, and Mid-Atlantic. Significantly, the Port Arthur refinery recently completed $10 billion worth of renovations that made it the largest and most updated refinery in the U.S.

Neither company has much to say about the breakup, although management has long been an issue. “Too many cooks in the kitchen,” an oil trader familiar with the company commented.

On Shell’s part, the move seems to be motivated by a desire to save cash by simplifying operations. After a disastrous foray into offshore drilling in the Arctic that the company cancelled after losing billions of dollars, Shell merged with the BG Group in London. Since then, Shell has been actively slimming down its operations. This month, in addition to the Motiva split, the company also dropped a major gas project in the UAE. Shell seems focused on shoring up its core areas: deep water drilling and LNG.

In many ways, Motiva was a test case for Saudi Aramco as the company has expanded its downstream operations over the past fifteen years. Since partnering with Shell on Motiva, Saudi Aramco has gone on to undertake joint venture refining enterprises with Sinopec, Total (TOT), ExxonMobil (XOM), and Hanjin Energy, in addition to co-ventures with Shell in Saudi Arabia, South Korea, Japan, and China.