Shell kisses South African service stations and refinery goodbye

 ·27 May 2024

Shell recently announced that it intends to exit shareholdings in its South African retail, transport, and refining operations.

Shell said in a statement that it has decided to reshape the downstream portfolio and intends to divest its shareholding in Shell Downstream SA (SDSA).

SDSA was formed by merging Shell South Africa Marketing and Shell South Refining businesses ten years ago.

Black empowerment company Thebe Investment Corporation held a 28% equity stake in Shell Downstream SA, and Shell owned 72%.

However, Thebe Investment Corporation withdrew from its involvement with Shell two years ago. There is now a dispute about the value of shares sold back to Shell.

Thebe Investment Corporation dismissed claims that it had anything to do with Shell’s exit from the country.

While Shell is exiting its downstream business in South Africa, it will retain its explorative and extractive activities in the Karoo and off the Wild Coast.

Shell’s exit from South Africa did not look good for the ruling party, and Mineral Resources and Energy Minister Gwede Mantashe quickly struck back.

Mantashe warned that the government may grant fewer oil exploration permits to Shell over its exit from South Africa’s fuel-supply business.

The announcement also sparked fears of job losses and filling station closures. Shell has a very strong presence in South Africa.

The Outlier reported that Shell has 591 retail outlets in South Africa, which is one of its biggest global markets.

Liquid Fuels Wholesalers Association of South Africa CEO Peter Morgan dismissed concerns about job cuts or a lack of filling stations.

Morgan said Shell will likely follow the same route as in other African nations by leaving a smaller sub-brand in the country, in which it will retain a share.

Therefore, jobs at its 591 forecourts are not immediately at risk, and the filling stations aren’t likely to shut down.

He said Shell would exit South Africa but leave behind a smaller sub-brand called Viva. They will find an 80% partner and keep 20% of that.

Shell’s presence in South Africa

The Outlier reported that Shell owns about 40,000 fuel service stations worldwide, half of which are in the Americas.

There are 591 retail outlets in South Africa, the thirteenth-most among the 61 countries where the petroleum giant has a presence.

Its refinery in Durban has been inactive since the end of March 2022, when it was decided to suspend operations and spending. A month later, floods severely damaged the plant.

South Africa is not unique. Shell’s divestment from the country is part of a comprehensive review of its global operations.

Shell has sold downstream assets in Australia, Botswana, Burkina Faso, Côte d’Ivoire, Guinea, Kenya, and Namibia.

The company has also been scaling down activity in Malaysia, Uruguay, Paraguay, and Colombia.

The Outlier reported that South Africa’s roughly 4,000 service stations are split between six main fuel retailers.

Engen is the leading service station brand in South Africa with 1,040 outlets, followed by Caltex, which rebranded to Astron, with 850, and Shell with 591.

Total Energies ranks fourth with 547 filling stations, followed by BP with 500 and Sasol with 354.

The image below, courtesy of The Outlier, provides an overview of South Africa’s filling station footprint.

Many companies interested in buying the assets

Bloomberg reported that Abu Dhabi National Oil Co. and Saudi Arabia’s state oil producer Aramco are among the companies weighing bids for Shell’s downstream assets in South Africa.

Sasol is separately considering an offer for the business, which could be valued at more than $800 million.

Trafigura Group’s Puma Energy subsidiary and Glencore are also among potential suitors that may study the assets ahead of a bid deadline in the coming weeks.

Deliberations are in the early stages and other bidders could also emerge. A Shell spokesperson said that the company had been approached “by several highly credible parties” without naming the bidders.

A spokesperson for Adnoc’s listed retail arm, Abu Dhabi National Oil Co. for Distribution PJSC, said the company regularly reviews domestic and international growth opportunities and declined to comment further.

Representatives for Glencore, Puma Energy, Sasol and Trafigura declined to comment. A spokesperson for Aramco didn’t respond to queries.

A related development is the state-owned Central Energy Fund (CEF) buying the Sapref refinery from oil majors Shell and BP for R1.

Mineral Resources and Energy Minister Gwede Mantashe said the deal would address the challenges with South Africa’s refining capacity.

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