Wednesday, March 19, 1997

Texaco, Shell to combine some refining, marketing activities

By JOAN THOMPSON

Associated Press

HOUSTON (AP) - Shell Oil Co. and Texaco Inc. announced Tuesday they will combine refining and marketing operations that account for 14 percent of gasoline sales in the western and midwestern United States.

The two oil giants also said "significant progress" had been made in talks to join their eastern U.S. refining and marketing businesses with Saudi Refining Inc.

Shell will own 56 percent and Texaco 44 percent of the as-yet-unnamed company, which also will combine nationwide transportation and lubricants businesses.

"There is a powerful case for fundamental change in the way petroleum refining and marketing companies operate in the United States," said Philip J. Carroll, president and chief executive officer of Houston-based Shell Oil.

With gasoline prices subject to wide fluctuations, oil companies have been looking for ways to cut the costs of turning oil into fuel.

Mobil and British Petroleum last year agreed to put together their European refining and marketing operations. Phillips Petroleum Co. and the Conoco Inc. unit of DuPont Co. tried a combination, but the deal fell apart when the companies couldn't agree on price.

"It's part of a larger trend within the oil industry," said Tim Evans, senior energy analyst at Pegasus Econometric Group in New York. "Some companies have been looking for partners in Europe to do this same sort of thing where they kind of pool their operations and let one or the other company manage the regional refining and marketing."

The companies hope to have final agreements and regulatory approval by early 1998.

Citizen Action, a Washington, D.C.-based consumer watchdog group, criticized the plan, saying it would mean less competition and higher gasoline prices.

"The combination will result in just three companies in California - Arco, Chevron and Texaco/Shell - controlling over 75 percent of the gasoline market," said Edwin S. Rothschild, the group's energy policy director. "If allowed by the Federal Trade Commission, a merger between Shell and Texaco would set a dangerous precedent in the oil market."

Under the plan, the two companies will continue to market gasoline under their own brand names. Officials said some jobs may be cut as the companies share management and support functions.

The companies have more than 23,500 employees in refining and marketing operations.

Discussions about merging the refining operations were confirmed last October. The companies are optimistic about reaching an agreement by June with Houston-based Saudi Refining, which is an affiliate of Saudi Aramco, Saudi Arabia's state oil company.

The deal announced Tuesday involves no cash or stock transfers. The companies would not reveal the value of the assets, although the accord would unite some 11,212 gas stations in the West and Midwest, 43,600 miles of pipeline and 6.1 percent of U.S. refinery capacity.

The union of all three companies would mean combined assets of more than $10 billion.