In a deal that paved the way for the Chevron-Texaco merger to be completed last week, Royal Dutch/Shell Group signed a $3.8 billion agreement to buy out Texaco’s two oil refining and marketing joint ventures, making Shell the largest U.S. gasoline refiner with nearly a 15% market share. The sale of Texaco’s joint ventures was confirmed on the last day before the assets were due to go into a trust to allow completion of the Chevron Texaco combination, as specified by the Federal Trade Commission. The $39 billion merger gained approval Tuesday from shareholders of both companies and was completed shortly after the shareholders voted.

Texaco signed an agreement with Shell Oil and Saudi Refining (SRI) for the sale of its interests in Equilon Enterprises LLC, its U.S. refining and marketing joint venture with Shell, and Motiva Enterprises LLC, its downstream joint venture with Shell and SRI. Subject to federal and state regulatory review and completion of definitive agreements, Shell would have 100% interest in Equilon and Shell and SRI would each have a 50% interest in Motiva.

Under terms of the deal, Texaco would receive $2.4 billion in value, including proceeds of $2.15 billion, tax benefits and other considerations for the sale of Texaco Refining and Marketing Inc. (TRMI), its wholly owned subsidiary which holds the interests in Equilon and Motiva. Additionally, Shell and SRI will assume responsibility for $1.4 billion in debt and $0.3 billion in other liabilities.

Shell said the deal will lead to savings of $400 million by 2004 and that it hopes to increase U.S. business net earnings to $1 billion from a current $450 million by that year. Part of the savings will come from the elimination of 10% of the 12,000 jobs in the partnerships. Shell will gain full ownership of Equilon, which serves markets from Ohio to Hawaii with 9,000 stations, as well as four refineries, a lubricants business, pipelines and ports. Saudi Arabia, already a partner in Motiva’s 13,000 stations and other refining and shipping assets from Maine to Texas, will boost its stake in that venture and help pay the purchase price. Shell didn’t disclose the amounts each company paid Texaco.

Chevron already is the world’s fifth-largest oil company by market value, and will remain so with Texaco on board, but its new market capitalization of close to $100 billion will push it into the leading group of giant companies, headed by Exxon Mobil Corp., Shell, BP Plc and Totalfina Elf SA.

Chevron agreed to buy Texaco last October in a stock deal valued at $39.3 billion, plus the assumption of about $6 billion in debt. Under the terms of the deal, Texaco shareholders receive 0.77 shares of Chevron common stock for each share of Texaco common stock they own, and Chevron shareholders will retain their existing shares. Chevron was renamed ChevronTexaco last week and will trade on the New York Stock Exchange under the new ticker symbol CVX.

The new company will have reserves of 11.2 billion boe, daily production of 2.7 million boe and assets of $77 billion. In the United States, ChevronTexaco will be the nation’s third largest producer of oil and gas, with production of 1.1 million boe/d, and will hold the nation’s third largest reserve position, with 4.2 billion boe of proven reserves.

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