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Royal Dutch/Shell, Texaco in European Venture

Energy: The marketing and refining alliance is a sign of more consolidation in the oil industry.

September 04, 1998|From Reuters

LONDON — Royal Dutch/Shell Group and Texaco Inc. on Thursday announced plans for a marketing and refining joint venture in Europe, signaling further consolidation in the oil industry.

The companies signed a nonbinding memorandum of understanding, with the aim of establishing the joint venture by the middle of next year, offering estimated annual pretax savings of at least $200 million.

Under terms of the memorandum, Royal Dutch/Shell will have an 88% interest in the joint venture, with White Plains, N.Y.-based Texaco holding 12%. The proposed venture will use both the Shell and Texaco brand names.

However, Shell reiterated that it had no plans for a full merger with Texaco despite persistent market talk of such a deal in the wake of last month's planned British Petroleum Co.-Amoco Corp. merger.

Shell and Texaco already have joint ventures in refining and marketing in the United States covering the East and West coasts.

The BP-Amoco link triggered widespread speculation about a range of similar deals designed to cut costs and produce a new breed of oil company better able to survive the lowest crude oil prices in 10 years.

The creation of a joint venture, with about 14% of the western European retail fuels market, should help Shell in its drive to improve return on capital in European refining and marketing, now among the lowest in the company's portfolio.

The alliance will not involve the companies' other activities in Europe or their coolants, liquefied petroleum gas, international aviation and marine products businesses.

A Shell representative said it was too early to comment on possible refinery closures, but analysts believe cutbacks will be only a matter of time, providing relief for a glutted European market.

Shell has whole or partial ownership of 17 refineries in Europe and Texaco has two.

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