Saudi firm acquires majority stake in Shell Pakistan

Experts say Shell faced challenges in Pakistan’s regulated oil market

ISLAMABAD:

In a significant move, Royal Dutch oil company Shell has reached an agreement to sell its 77.42% majority stake in Shell Pakistan Limited (SPL) to Saudi firm Wafi Energy LLC. This decision comes as Shell reorganises its global business, and the sale aligns with its strategy to enhance its mobility network. The transaction is expected to be completed in the fourth quarter of 2024, pending regulatory approvals.

Oil industry experts note that Shell Pakistan had faced challenges in the regulated oil market of Pakistan. Exchange losses resulting from the depreciation of the rupee against the dollar and a fatal tanker accident in South Punjab led to a drop in market share from 13% to 8%. These factors, along with Shell’s global restructuring efforts, contributed to the decision to exit the Pakistani market.

However, this development holds potential for Saudi firm Wafi Energy LLC. Shell Pakistan had a 25% stake in the Parco pipeline, which is currently operating at only 23% capacity. This offers an opportunity for Wafi Energy to increase the pipeline’s output and, in turn, its operational capacity.

Upon completion of the sale, the Shell brand will continue to be present in Pakistan through brand licensing agreements, ensuring that customers will have access to Shell’s premium fuel and lubricant portfolio.

Shell Pakistan Limited, listed on the Pakistan Stock Exchange (PSX), maintains a substantial business footprint in Pakistan, encompassing more than 600 mobility sites, 10 fuel terminals, a lubricant oil blending plant, and a 26% shareholding in Pak-Arab Pipeline Company Limited.

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

In a notice to the PSX, Shell Pakistan Limited confirmed that Shell Petroleum Company Limited (SPCo) and Wafi Energy LLC (WAFI Energy) executed a Share Purchase Agreement (SPA) on October 31, 2023. The agreement entails the sale of SPCo’s entire shareholding in SPL, amounting to 165,700,304 shares, representing 77.42% of the issued share capital of the company. The completion of the transaction is contingent on the issuance of a public offer by Wafi Energy, requisite approvals, including clearance from the Competition Commission of Pakistan, and the fulfilment of other closing formalities.

This decision to exit Pakistan was initially announced in June 2023 when the country's economic situation was precarious. At the time, the government was actively involved in regulating oil prices, and the oil industry was grappling with issues related to letter of credits (LCs) for imports of petroleum products. The move by Shell coincided with the highest-ever increases in petroleum product prices, which benefited oil marketing companies with higher inventory gains.

According to the financial results released by Shell Pakistan Limited, the company achieved a profit after tax of Rs6,450 million for the nine months ending September 30, 2023, compared to the previous year’s profit after tax of Rs2,864 million during the same period.

Published in The Express Tribune, November 2^nd, 2023.

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