Shell inks deal to sell Malaysian refinery

Royal Dutch Shell PLC has entered into a conditional agreement to sell its majority interest in Shell Refining Co. (FOM) Bhd. (SRC), including the 125,000-b/d refinery in Port Dickson, Malaysia, to Malaysia Hengyuan International Ltd. (MHIL), a subsidiary of China’s Shandong Hengyuan Petrochemical Co. Ltd. (SHP), Shandong (OGJ Online, Jan. 27, 2016).

MHIL has agreed to buy Shell’s 51% stake in SRC—an equivalent of 153 million ordinary shares—for $66.3 million, Shell and SHP said in separate news releases.

The deal is scheduled to close sometime this year pending a series of regulatory approvals and conditions, all of which should be in place within the next 8 months, SHP said.

Upon completing the proposed acquisition, SHP said it plans to execute a sequence of projects to expand, reconstruct, and upgrade the Port Dickson refinery that will bring the plant into compliance with regulatory requirements, optimize its product mix, and strengthen SRC’s overall position as a long-term, leading regional refined products supplier to Malaysia.

Specifically, the planned refinery upgrades will involve work needed to enable a production slate of products that meet Euro 4M and Euro 5 quality specifications, Shell said.

SHP’s purchase of SRC’s business comes as part of the company’s plan to further expand its existing petrochemical supply chain, which includes increasing its assets scale, gaining further penetration into Malaysia’s market, and establishing a strategic presence in Southeast Asia, SHP said.

Shell’s downstream selloff

Shell, which plans to continue to do business in Malaysia, said its divestment of SRC aligns with the company’s strategy to concentrate its downstream footprint on a smaller number of assets and markets where it can be most competitive.

Alongside ongoing operation of Shell Malaysia Trading Sdn. Bhd. to ensure secure supplies to Malaysian retail and commercial customers, Shell said it also will honor other existing commitments in the region through an existing comprehensive supply strategy that includes a long-term offtake from SRC.

Shell’s other recent downstream divestments include the sale of its downstream businesses in Australia and Italy (OGJ Online, Feb. 21, 2014), a number of UK retail sites, and the initial public offering of and further drop downs to Shell Midstream Partners LP.

Additionally, Shell also has agreed to the sale of its marketing business in Denmark and Norway, its LPG businesses in France (OGJ Online, May 7, 2010; May 9, 2003), and its 33.24% shareholding in Showa Shell Sekiyu KK (OGJ Online, July 30, 2015).

Shell’s sale of SRC follows the subsidiary’s announcement last year that it was investigating long-term options regarding the future of the Port Dickson refinery, which included its potential sale, closure, or conversion to a storage terminal September 2014 determination by SRC’s board that regional refining margins would remain depressed due to overcapacity in the global refining industry (OGJ Online, Jan. 14, 2015).

Contact Robert Brelsford at rbrelsford@ogjonline.com.

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