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Petroleum industry

Texaco, Shell, and Saudi Aramco Form Alliances to Boost Profits in a Competitive Gas Market

Strategic Insights

— 1 min read

Texaco Inc., Shell Oil Co., and Saudi Aramco have agreed to create a refining alliance, which will be the nation's No. 1 seller of gasoline and will have 13 to 15 percent of U.S. gas sales. The alliance, formed through two joint ventures, Equilon Enterprises LLC and Motiva Enterprises LLC, combines the companies' gas station and refining businesses. The alliance is expected to generate significant cost savings, estimated at $800 million annually, through the consolidation of operations.

Key Takeaways:

  • The refining alliance will be the nation's No. 1 seller of gasoline, with 13 to 15 percent of U.S. gas sales.
  • The alliance combines the companies' eastern and Gulf Coast refining and gas station businesses, as well as their Western and Midwestern gas station and refining businesses.
  • Shell will own 35 percent of Motiva Enterprises LLC, while Texaco and Saudi Refining Inc. will each own 32.5 percent.
  • The joint venture is expected to begin operating in June, with L. Wilson Berry as chief executive.
  • The alliance is expected to generate significant cost savings, estimated at $800 million annually.
  • The exploration, production, and chemical businesses of Shell, Texaco, and Saudi Aramco are not included in either of the alliances.
  • The companies agreed to the refining alliance to reduce costs and boost profits in a highly competitive gas market.
  • Shares of Texaco and Shell's U.S. units rose following the announcement of the alliance.

Statistics:

  • 13-15 percent: Estimated market share of the refining alliance in U.S. gas sales.
  • 25,000: Number of gas stations that will sell fuel under the Texaco and Shell brands.
  • 35 percent: Share of ownership of Muriva Enterprises LLC held by Shell.
  • 32.5 percent: Share of ownership of Muriva Enterprises LLC held by Texaco and Saudi Refining Inc.
  • 800 million: Estimated annual cost savings of the refining alliance.
  • 6 months: Time it took for Equilon Enterprises LLC to begin operating after agreement was reached.
  • 56 percent: Share of ownership of Equilon Enterprises LLC held by Shell.
  • 44 percent: Share of ownership of Equilon Enterprises LLC held by Texaco.

Sources:

  • Bloomberg News
  • New York Times
  • Wall Street Journal
  • Royal Dutch/Shell Group website
  • Saudi Aramco website

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