Shell divorce

Aramco divorce leaves Shell investors in the dark

Building gigantic refineries is a complex business, but dividing them up between investors can be even trickier. After almost 20 years together, Royal Dutch Shell and Saudi Aramco plan to break apart their Motiva Enterprises 50:50 joint venture, which runs the United States' biggest refinery at Port Arthur and a fuel marketing network. Given that the Anglo-Dutch major and Saudi's state oil giant invested $10 billion into expanding Port Arthur three years ago, Shell shareholders would probably like to know that the value of what they're getting justifies a potentially messy divorce.

From the split Aramco gets Port Arthur, which is geared up to process heavier Arabian crude and guarantees Saudi a route into the United States, the biggest consumer of petroleum products. This suits the Saudis, who have been squeezed over the last decade by the emergence of lighter-grade domestically produced sweet oil. Shell, meanwhile, gets two other refineries on the US Gulf of Mexico. But neither Shell nor Aramco disclose the revenue generated by each refinery, or from Motiva's fuel marketing business.

One way to value the refineries is to read across from the $1,672 per barrel recently paid by PBF Energy to acquire the Chalmette refinery from Exxon Mobil Corp and Petroleos de Venezuela. Given that Motiva's plants process almost 1.1 million barrels per day, that implies a valuation of $1.8 billion, with Aramco getting 55 per cent of this by virtue of getting to control Port Arthur, which churns out 603,000 barrels a day.

But these figures only account for the refinery processing and don't take into account the different grades of liquids produced or storage facilities. Each of the three plants also could be storing significant volumes of oil and refined products, which would also affect the value.

Given Aramco is wholly owned by the Saudi government, its returns may not be of paramount importance. Shell investors should be less happy at the lack of clarity. As the group looks to bed down its recent $52 billion acquisition of BG and divest $30 billion of assets, it needs to avoid losses elsewhere.

Shell may yet avoid this if any shortfall is compensated via a proportionate cash payout from Aramco. But given the current low oil prices, the Saudis wouldn't be inclined to be generous.