WASHINGTON, Sept 28: The US government approved the $1.8 billion purchase by Shell Oil Co. of the Pennzoil Quaker State Co., America’s largest motor oil maker and parent of the Jiffy Lube service stations.

The deal, first announced last March, is expected to be made final by the end of the year. It is the latest merger in a trend of oil industry consolidation in recent years.

The Federal Trade Commission conditioned its approval, however, on Pennzoil selling its interest in a company that makes the feed stock used in high-performance motor oil, saying the cost of such motor oil would otherwise probably increase because of the lack of competition.

The companies have agreed to the required divestitures.

Pennzoil Quaker State, based in Houston, will be combined with Shell’s lubricants unit, also based there. The new company will then become a wholly owned subsidiary of Shell Oil Co., which in turn is a division of Royal Dutch/Shell Group.

The merger is expected to result in the loss of about 1,230 jobs, or about 15 per cent of the work force within the two motor oil companies, as they combine overlapping operations, according to company executives. Pennzoil Quaker State has about 7,400 workers worldwide, while the Shell lubrication unit employs about 800 workers.

Royal Dutch/Shell Group, the parent company of Shell Oil, announced the planned purchase last month, saying it would pay $22 for each share of Pennzoil Quaker State stock and assume $1.1 billion of its debt.

The deal has been approved by Pennzoil Quaker State’s board of directors.

Pennzoil Quaker State is the leading US producer of motor oil, including the popular Pennzoil and Quaker State brands, both of which will survive the merger. It also is owner or franchisee of more than 2,150 Jiffy Lube service centres around the country.

The acquisition will give Shell three of the top five domestic motor oil brands. It also produces the Havoline brand motor oil.

Under the FTC order, Pennzoil Quaker State will have to sell its 50 per cent ownership of Excel Paralubes, a joint venture with Conoco Inc. that produces Group II parafinic base oil, a feed stock for high-performance motor oil.

The FTC said that without the divestiture the new company would control too large of a market share in the feedstock, which is essential to the type of motor oil that is in growing demand.

This would raise “the significant potential for reduced competition and higher prices for consumers,” said Joe Simons, director of the FTC’s bureau of competition. The agency said the two companies had agreed to the FTC conditions in a consent order, which will become final in 30 days.

Pennzoil Quaker State had worldwide revenues of about $2.3 billion last fiscal year. Royal Dutch/Shell Group had worldwide revenues of about $135 billion last fiscal year.—APP