Wednesday, March 16, 2016

Saudi Arabia Preparing To Monetize Assets? Top International Story Of The Week? -- March 16, 2016


March 11, 2018: Shell announces change of plans. After the "separation," Shell had planned to permanently decommission the Convent refinery. Shell has now decided to do a major overhaul of that refinery and keep it running for another five years. 

May 26, 2017: update here. Saudis to spend $18 billion along the Texas coast; Motiva remains its crown jewel in the states.

April 1, 2017: Saudis take 100% control of America's largest oil refinery. The US should now nationalize the refinery. LOL. And, oh, by the way, the "deal" closed under the Trump administration but it was approved and signed under the Obama administration. Saudi Arabia is already America's second-largest source of crude, behind only Canada. The US imported 1.3 million barrels of Saudi crude a day in February, up 32% from last year, according to the Energy Information Administration.

March 8, 2017: pretty much finalized -- split is complete, after a 19-year joint venture. Data points:
  • the joint venture was called Motiva
  • Royal Dutch Shell and Saudi Arabian Oil (Saudi Aramco) 
  • finalized
  • Motiva operates three refineries along US Gulf Coast 
  • Aramco will pay $2.2 billion to Shell
  • Aramco will assume almost all of Motiva's debt of $3.2 billion (includes Shell's share of $1.5 billion)
  • Shell will assume only $0.1 billion in net debt
  • motive for deal: allows Saudi to expand global refining operations
  • Shell needed to reduce debt following acquisition of BG Group for $47 billion  
  • Saudi will take full control of the Motiva Enterprises legal identity and the 600,000 bopd Port Arthur refinery in Texas
  • Saudi will also take over 24 distribution terminals along with the exclusive license to use the Shell brand for gasoline and diesel sales in Texas and other Southeast and Mid-Atlantic markets
  • Shell will gain complete ownership of Louisiana Refining System consisting of 235,000 bopd Norco refinery as well as 230,000 bopd Convent refinery
  • Shell will retain 11 distribution terminals along with the Shell branded markets in Florida, Louisiana, and the US Northeast
September 12, 2016: Saudi Aramco bidding for LyondellBasell refinery in Houston Ship Channel; capacity 270,000 bopd; would increase Saudi's crude oil refining capacity by 50% along the Gulf coast. 

March 20, 2016: USA Today -- Saudi now owns largest refinery in the US

March 18, 2016: after split, Saudi Aramco wants to buy more US refineries. Reuters is reporting:
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.
Ending an often rocky nearly 20-year relationship, Shell and Saudi Aramco announced on Wednesday plans to break up Motiva Enterprises LLC 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.
This would make sense:
  • monetizing this refinery asset, would provide seed money for buying additional refineries
  • Saudi looking for refinery access in the US
  • it's easier to buy refineries than to build new refineries in the US, although it begs several obvious questions
Original Post
This seems like this will be a huge story. It may be bigger than I realize or many realize, for a number of reasons. I will probably list this as a top international story when I compile the top stories for the week.

Motiva Enterprises, LLC, is a huge refinery operation along the US gulf coast, a 50-50 joint venture between Shell Oil Company and Saudi Refining (controlled by Saudi Aramco). The main reason US imports Saudi oil is to supply this enterprise.

According to wiki, this date, Motiva Enterprises consists of:
  • three (3) oil refineries in the gulf coast region of the US
    • a 600,000 bopd refinery in Port Arthur, TX
    • a 235,000 bopd refinery in Convent, LA
    • a 240,000 bopd refinery in Norco, LA
  • on May 25, 2012, Motiva completed its expansion of the Port Arthur refinery to a capacity of 600,000 bopd; this made it the largest refinery in NA and the fifth largest in the world
  • marketing outlets include 7,600 Shell-branded service stateions
It is being announced that Saudi and Shell will "separate" and each will hold 50% of the Motiva Enterprises. At Oil & Gas Journal:

Saudi Refining Inc (SRI) will retain:
  • the Motiva name
  • 100% ownership of the 600,000 bopd Port Arthur, TX, refinery
  • retain 26 distribution terminals
  • maintain an exclusive, long-term license to use the Shell brand for gasoline and diesel sales in Texas, the majority of the Mississippi Valley, the US southeast, and the US mid-Atlantic markets
Shell will assume:
  • sole ownership of the 235,000 bopd Norco refinery
  • sole ownership of the 242,250 bopd Convent refinery (Motiva previously announced this refinery will be integratedto create the Louisiana Refining System (LRS)
  • the distribution terminals, as well as Shell-branded markets, in Florida, Louisiana, and the US northeast
Note: the numbers are at slight variance to the wiki source.

To keep this simple: in the break-up, Saudi keeps the Port Arthur, TX, refinery, and Shell gets the two refineries in Louisiana.

Shell owns a co-located petrochemical plant at the Norco refinery.

More at the link.

The reason this seems to be a huge story is this: I don't think anyone ever imagined that Saudi would start monetizing assets. This suggests that a) they are in deeper financial difficulty than "we" realize; and, b) unlike other downturns in the oil industry, Saudi does not see their problems as short term.

Again, Saudi can't live on $60 oil. The US shale industry will be thrown a lifeline at $40; will survive at $50; and may begin to thrive again at $60. For Saudi, $60 oil only slows the hemorrhaging of their cash reserves.

In addition to this, Saudi has announced that its government ministries will cut spending for this year by 5%.

In the past 24 months (I forget exactly when), Saudi canceled/deferred huge solar energy projects because they couldn't handle the cost.

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