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The Wall Street Journal: Shell Considers If It Should Sell French Refineries

January 12, 2007

LONDON — Royal Dutch Shell PLC said it was considering selling off its French refining assets as part of an “ongoing strategic review” to streamline and concentrate its downstream assets.

The French assets could fetch a total of some $1.5 billion to more than $1.6 billion, analysts said.

Two people familiar with the matter said Russian oil company OAO Lukoil Holdings made an approach to Shell in early December about the French refining assets, which triggered Shell’s review.

The review will look at the 142,000 barrel-a-day Petit Couronne refinery, accounting for about 7% of France’s refining capacity; the 80,000 barrels-a-day Berre l’Étaing refinery, and Shell’s 65% stake in the 77,000 barrels-a-day Reichstett refinery. It will also include the 79,000 barrels-a-day Yabucoa petrochemicals plant in Puerto Rico.

Rob Routs, Shell’s executive director, downstream, said: “The assets we’re reviewing are important to their markets, and in fact a number of parties have approached us with an interest in purchasing them as going concerns. We’re looking closely at how these assets can generate best value for our shareholders.”

A Lukoil spokesman said the company is in principle interested in acquiring downstream assets in Europe but couldn’t comment specifically on the Shell assets.

Shell’s announcement comes amid a weakening refining environment in what is a highly cyclical business. Average quarterly global refining margins have fallen 32% from year-earlier levels. In October, Shell reported a 34% fall in third-quarter net earnings, partly on weaker refining margins but also continued Nigerian unrest and increased cost pressures.

The move to review its French refineries is a good one for Shell, according to ING analyst Jason Kenney. He said the assets in question look reasonably noncore and that disposing of them would create more flexibility, adding: “Getting rid of low-return peripheral assets is always positive.”

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