Shell oil firm signs agreement with Wafi to sell majority shareholding

By Omed Hajjana

Shell oil firm has signed an agreement to sell majority shareholding in Shell Pakistan Shell Petroleum Company Limited, a subsidiary of Shell plc (Shell), has agreed to sell its 77.42% majority interest in Shell Pakistan Limited (SPL) to Wafi Energy LLC.

The sale is part of Shell’s strategy to high-grade its mobility network and was first announced on Capital Markets Day in June 2023.

The sale is expected to be completed by Q4 2024, subject to regulatory approvals. Upon completion, the Shell brand will remain in Pakistan through brand licensing agreements and customers will continue to have access to Shell’s premium fuel and lubricant portfolio.

SPL said it remains committed to delivering safe, reliable operations. Notes to editors- SPL is listed on the Pakistan Stock Exchange (PSX: SHEL).

Its total business footprint in Pakistan includes more than 600 mobility sites, 10 fuel terminals, and a lubricant oil blending plant.

It has also a 26% shareholding in Pak-Arab Pipeline Company Limited.

Wafi Energy LLC, a wholly-owned affiliate of Asyad Holding Group, is a leading fuel retailer in the Kingdom of Saudi Arabia and last year signed a license agreement to operate mobility sites under the Shell brand in the kingdom.

Shell Pakistan Limited (SPL) has been reportedly sold to the Wafi Group of KSA.

Earlier, Shell’s divestment value had been estimated to be around US$140 million

Based on preliminary information, SHEL’s assets were estimated to be valued at approximately Rs40 billion (US$140 million) or Rs186 per share.

The current market capitalization of the company is US$71 million (Rs95.8 million), indicating a potential upside for the share price.

Unlike other OMCs, Shell Pakistan is not heavily leveraged due to its cash-rich lube and retail business.

It is anticipated that a new player acquiring Shell Pakistan’s assets may bring efficiency to the local business.

SHEL’s annualized net revenue is approximately Rs430 billion (US$1.5 billion), with a gross margin (excluding inventory gains/losses and depreciation) of around 6.5%, one of the highest among listed OMCs.

This is largely due to the significant contribution of the lube business to the company’s gross profit. OMCs generally enjoy a gross margin of 2.2% (Rs6 per liter) on retail business, which is expected to increase in the future as it is linked to CPI inflation.

Sherman Research in its report said that the acquirer may have the opportunity to reduce costs by around Rs3-4 billion per annum, resulting in an improvement of Rs10 in earnings per share.

Multinational corporations typically pay technical fees to their foreign franchises and allocate higher costs for environmental protection.

It is expected that the acquirer may continue with technical fees for the lubricant business to maintain quality standards.

Shell Pakistan Limited (SHEL) has announced its parent company’s intention to sell its stake in Pakistan assets, as stated in a notice issued yesterday.

While the exact extent of the divestment has not been disclosed, Shell Global, in an investor presentation, mentioned its plans to sell the entire stake, pending regulatory approvals.

Representatives from Shell Global have also revealed that they have received significant interest from international buyers for their retail and lubricant business in Pakistan.

This move aligns with Shell’s global strategy of expanding in the low-carbon fuel sector, as the company has already announced divestment plans for its European retail business.

Following the news of the divestment, SHEL’s stock experienced a rally of 15%. Local investors expressed excitement about this development, as Shell Pakistan is one of the largest multinational corporations in terms of turnover, generating around US$1.5 billion.

The decision to sell assets in Pakistan comes at a time when the company’s share price is at its lowest levels due to economic concerns.

Shell Global currently holds over 77% stake in Shell Pakistan, and according to regulations, if the deal materializes, minority shareholders will also benefit as the potential buyer will acquire 50% of the free float from minority shareholders.

Shell Pakistan, according to the Pakistan Oil Market Report 2022, is the fifth largest Oil Marketing Company (OMC) in the country, with over 641 retail outlets and 150,000 tons of oil storage capacity, including main installations and upcountry depots.

The company also owns a 26% stake in Pak Arab Pipeline Company, which is significant for the transportation of white oil fuels to upcountry locations, particularly when the government deregulates oil pricing mechanisms.

Shell Pakistan’s flagship lube business operates with a production capacity of 95,000 tons of lube oil, covering an area of 100,000 square yards at Kemari.