Shell and Texaco merger could create world's biggest oil group

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The Independent Online
Shell Oil, the US arm of Royal Dutch Shell, and Texaco are in talks which could create the world's largest oil marketing operation. The two oil giants confirmed yesterday they were discussing a possible merger of their US refining and marketing businesses in a deal which analysts said would create a $10bn (pounds 6.4bn) company with around 15 per cent of the US petroleum products market. Star Enterprise, a joint venture between Saudi Arabia's Aramco oil group and Texaco, is also involved in the talks.

News of the negotiations sent shares in the oil sector to all-time highs yesterday, with Shell up 17p at pounds 10.16 and BP 12p better at 699.5p. Analysts welcomed the news, which they said was part of a growing trend of integrated oil groups seeking new solutions to downstream assets which had been underperforming for years. Earlier this year BP and Mobil announced a $5bn deal to merge their downstream assets in Europe. Exxon, the US group, and OMW of Germany have also announced plans to merge two adjacent refineries.

A US newspaper report prompted the statement from Shell Oil yesterday. The company said "it is discussing with Texaco the potential for joint arrangements involving US downstream operations. While the companies are reviewing a range of options concerning the businesses which might be involved, no decisions have been made."

One analyst said the deal could mean $500m-a-year savings across the new grouping, of which $300m might accrue to Shell. "It is a very strong runner. It looks as though they are in serious talks."

The business would have sales of around $20bn, assets of $10bn and control a 15 per cent share of markets ranging from petrol and diesel to heating oil and heavy fuel oil for power stations.