Saudis Reportedly Want 50% Stake in Texaco Refineries : $1-Billion Deal Would Give U.S. Oil Giant Funds to Help Pay Its Pennzoil Settlement
Texaco is near agreement on selling a half-interest in its refinery network on the U.S. Gulf Coast to Saudi Arabia for more than $1 billion, according to a European newspaper report.
Texaco would neither confirm nor deny the report. The company said its previously acknowledged discussions with several unidentified potential partners “have not progressed to the point” where either side was prepared to comment.
However, a Texaco-Saudi deal, which has been rumored for months, makes so much sense to analysts that the report was widely believed. Such a deal would help the U.S.-based oil giant pay its $3-billion out-of-court settlement with Pennzoil Co. It would also be a big step toward Saudi Arabia’s goal of setting up a refinery network in the United States and Europe.
If an agreement is reached, the Saudis would become the second member of the Organization of Petroleum Exporting Countries to become a part-owner of U.S. oil refineries. Venezuela owns half-interests in refineries in Corpus Christi, Tex., and Lake Charles, La.
Two Large Refineries
The investment by some OPEC members in U.S. refineries is seen by energy analysts as a positive development for the nation’s energy security, while those members’ financial stake on consuming nations stands to deepen the divisions within the oil cartel.
Venezuela and a third OPEC member, Kuwait, have been mentioned along with the Saudis as potential joint venture partners for Texaco, which announced last month that it hoped to sell partial interests in refineries as part of its bankruptcy-related restructuring.
The International Herald Tribune, a Paris-based newspaper, quoting unidentified Texaco and Arab sources attending an oil industry conference in London, said a “final agreement between Petromin, the Saudi oil holding arm, and Texaco is expected to be reached within a month.”
It wasn’t clear what property might be involved, but Texaco has two large refineries at Port Arthur, Tex., and Convent, La., that account for more than half the company’s entire U.S. crude oil refining capacity. The company has five smaller domestic refineries elsewhere.
Robert Cunningham, a vice president at Turner, Mason & Co. of Dallas, consultants in refinery economics, said $1 billion would be a “not unreasonable” price for a half-interest in those two refineries, which can process about 520,000 barrels of oil per day.
Analysts speculated that a Texaco-Saudi deal would resemble the arrangement that the Venezuelan national oil company, Petroven, has in its joint ventures with Champlin Petroleum and Southland Corp. as well as a third venture in West Germany. The Venezuelans are committed under long-term contracts to ship about 500,000 barrels of crude daily to the two U.S. refineries and the European facility.
Another OPEC member, the United Arab Emirates, recently bought a stake in a large refinery in Spain. And Nigeria is weighing investments in unspecified refineries in New York and Philadelphia, said John Roberts, adviser to the Middle East Institute in Washington.
Would Help in Payments
Such relationships give the producing nation a guaranteed long-term outlet for its crude and the refiner a firm source of supply, while both sides avoid the increasing volatility of oil prices on the spot market. Meanwhile, Texaco desperately needs the cash as it prepares to emerge from bankruptcy in mid-April.
“This will go a long way toward meeting their $3-billion commitment to Pennzoil,” said Tom Tracy, analyst at John S. Herold Inc. consultants of Greenwich, Conn.
Texaco recently agreed to pay Pennzoil $3 billion to settle their long-standing dispute over Texaco’s acquisition of Getty Oil. A jury had awarded Pennzoil $10.3 billion in damages after finding that Texaco had interfered with a Getty-Pennzoil deal. Texaco then entered bankruptcy last year, leading to the out-of-court settlement.
That made Texaco a prime candidate for a partnership with the Saudis, who have been scouring the major oil consuming nations in search of refinery outlets. The Gulf Coast, with its intense concentration of refineries, already takes in heavy volumes of Saudi crude.
Kuwait has been an especially aggressive investor in Western oil concerns in recent years. Since its $2.5-billion 1981 acquisition of Santa Fe International, an Alhambra-based drilling and exploration company, the Kuwaitis have acquired an entire refining and marketing network in Europe and sell gasoline at thousands of service stations under the “Q8” brand. In recent weeks, Kuwait has acquired a stake of more than 19% in industry giant British Petroleum for “investment purposes.”
The Saudis would prefer joint ventures to avoid the public outcry that accompanied Kuwait’s outright purchase of Santa Fe in the wake of the second energy shock, Roberts said.
The Saudis are believed to have talked to other members of the Arabian American Oil Co., or Aramco, about possible acquisitions. In addition to Texaco, those members are Chevron, Mobil and Exxon. Aramco produces most of the crude oil in Saudi Arabia, and its members are among the Saudis’ biggest customers for the crude.
Both Parties Benefit
Energy security experts in this country have generally welcomed the prospect of part-ownership of U.S. refineries by producing nations. As allies, Venezuela and the Saudis are seen as valuable partners whose financial stake here would enhance rather than threaten the reliability of oil supplies.
Analysts said OPEC nations with a stake in U.S. refineries would be likely to provide a steady supply of crude oil at a reliable price in order to bolster their own substantial investments here. Such investments, they said, also may help staunch a decline in U.S. refining capacity and would discourage certain OPEC nations from taking actions that might undermine the American economy.
About 40% of the nation’s crude supplies now come from other nations.
“If we’re not concerned about getting 40% of our crude oil from other countries, we certainly shouldn’t be concerned about foreign-owned refineries,” said analyst Cunningham. “If anything, I find a little comfort in it.”
Roberts said: “From the point of view of Texaco, the Saudis and the U.S.-Saudi relationship, this is blindingly logical. . . . This gives the Saudis a stake in the U.S. consumer market. It ties producer and consumer together in a way that should benefit both.”
EXTENDING THEIR REACH Several members of OPEC have moved on their own into refinery operations around the world, including:
Venezuela’s national oil company, Petroven, owns half-interests in refineries in Corpus Christi, Tex., and Lake Charles, La., through joint ventures with Champlin Petroleum and Southland Corp., respectively. It has a third venture in West Germany.
Kuwait recently acquired a stake of more than 19% in industry giant British Petroleum for “investment purposes.” In 1981, it purchased Santa Fe International, a drilling and exploration company based in Alhambra. It also owns a refining and marketing network in Europe and sells gasoline there under the “Q8” brand.
The United Arab Emirates recently bought a stake in a large refinery in Spain.
Nigeria is weighing investments in unspecified refineries in New York and Philadelphia.
Ecuador is reportedly discussing a refinery venture with Ireland.
