Saudi Arabia, Texaco Join Forces : U.S. Firm to Refine Kingdom’s Oil, Market It in 23 States

From Reuters

Saudi Arabia and Texaco Inc. signed a $1.8-billion deal Thursday creating a joint venture to refine, distribute and market oil products in 23 American states.

The deal gives Saudi Arabia, the world’s biggest crude oil exporter, access to the largest oil market in the world and is a major step toward integrating its operations from the well to the gas pump.

Other OPEC exporters, notably Kuwait, have also begun taking stakes in “downstream” operations in the West to secure outlets for their crude oil and to insulate their economies from volatility in crude oil prices.

Saudi Arabia said it paid $812 million for a 50% stake in Texaco’s refining assets and marketing system in 23 U.S. states.


A joint statement said the deal would result in about $1.8 billion in cash benefits and savings for Texaco, the third-largest American oil company.

The agreement, signed in the presence of Saudi Oil Minister Hisham Nazer and Texaco President and Chief Executive James W. Kinnear, gives the new joint venture, called Star Enterprise, the right to buy up to 600,000 barrels daily of Saudi crude oil at market prices.

Other Projects Considered

The statement said the Houston-based joint venture, due to start operating by Dec. 31, would rank third behind Exxon Corp. and Mobil Corp. in oil sales in the 23 states and 10th in the whole of the United States.


Included in the deal are some 1,400 owned and leased service stations and a branded distributor network of about 10,000 stations, together with refineries at Port Arthur, Tex.; Convent, La., and Delaware City, Del.

Nazer told reporters that Saudi Arabia was considering other such projects worldwide but would not say with whom or when more agreements might be signed. Saudi Arabia may eventually sell all its crude oil through companies integrated into its own industry, Nazer said.

Asked by reporters how much of Saudi output would be sold through integrated channels, he replied: “without quoting a time span, probably all . . . we have a very long list of other marketing organizations that are interested in cooperation with Saudi Arabia.”

The next step in reorganizing the Saudi oil industry, he said, was to “join all the refineries which we have, Jeddah, Yanbu, etc., into one single refining and marketing company inside Saudi Arabia.”

Downstream moves by OPEC states were needed to safeguard their income, he added.

On Wednesday, Saudi Arabia set up a new state oil company, Saudi Arabian Oil Co., to oversee its petroleum industry. The new company apparently will take formal control of the kingdom’s vast oil industry from the Arabian American Oil Co., or Aramco, a consortium formerly owned by four major U.S. oil companies.

With almost one-fifth of world crude oil reserves, Saudi Arabia has been working on restructuring plans since Nazer took over as oil minister from Sheik Ahmed Zaki Yamani in late 1986.