Royal Dutch Shell has agreed to sell its 77.42% majority stake in Shell Pakistan Limited (SPL) to Saudi firm Wafi Energy LLC in a significant move. The decision aligns with Shell’s global strategy to enhance its mobility network and comes amid broader business reorganization efforts. The transaction is expected to be completed in the fourth quarter of 2024, subject to regulatory approvals.
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Factors Leading to Shell’s Exit from Pakistan
Shell’s decision to exit the Pakistani market is attributed to several factors, including:
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Challenges in the regulated oil market: Shell Pakistan faced difficulties operating in Pakistan’s tightly regulated oil market.
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Market share decline: The company’s market share dropped from 13% to 8%, partly due to exchange losses resulting from the rupee’s depreciation against the dollar.
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Fatal tanker accident: A fatal tanker accident in South Punjab further impacted Shell’s operations in Pakistan.
Potential Opportunities for Wafi Energy LLC
Despite these challenges, the acquisition presents potential opportunities for Wafi Energy LLC:
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Increased pipeline capacity: Shell Pakistan holds a 25% stake in the Parco pipeline, which currently operates at only 23% capacity. Wafi Energy could increase the pipeline’s output, boosting its operational efficiency.
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Continued Shell brand presence:Upon completion of the sale, the Shell brand will continue to be present in Pakistan through brand licensing agreements, ensuring customer access to Shell’s premium fuel and lubricant portfolio.
Transaction Details
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Shell Pakistan’s footprint: Shell Pakistan Limited has a substantial business presence in Pakistan, with over 600 mobility sites, 10 fuel terminals, a lubricant oil blending plant, and a 26% shareholding in Pak-Arab Pipeline Company Limited.
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Wafi Energy’s profile: Wafi Energy LLC, a wholly-owned affiliate of Asyad Holding Group, is a prominent fuel retailer in Saudi Arabia. Last year, it signed a license agreement to operate mobility sites under the Shell brand within Saudi Arabia.
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Transaction Timeline and Regulatory Approvals
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Share Purchase Agreement: On October 31, 2023, Shell Petroleum Company Limited (SPCo) and Wafi Energy LLC (WAFI Energy) signed a Share Purchase Agreement (SPA).
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Transaction completion: The transaction is expected to be completed in the fourth quarter of 2024, subject to:
- Issuance of a public offer by Wafi Energy
- Requisite regulatory approvals, including clearance from the Competition Commission of Pakistan
- Fulfillment of other closing formalities
Context of Shell’s Exit Decision
Shell’s decision to exit Pakistan was initially announced in June 2023, amid the country’s precarious economic situation. At the time, the government was actively regulating oil prices, and the oil industry was facing challenges related to letter of credits (LCs) for imports of petroleum products. Shell’s move coincided with the highest-ever increases in petroleum product prices, which benefited oil marketing companies with higher inventory gains.
Shell Pakistan’s Financial Performance
Despite the challenges faced, Shell Pakistan Limited 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.
