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Shell Mulls Sale of African Oil Product Retail Operations

THE WALL STREET JOURNAL

April 1, 2010

By JAMES HERRON

LONDON–Royal Dutch Shell PLC said Thursday it is working toward the sale of its oil-product retail businesses in 21 African countries, which one analyst estimated could be valued at $1.2 billion to $1.5 billion.

This announcement is the latest step in Shell’s drive to exit less profitable businesses and focus its capital on big projects that will raise its long-term oil and gas output. “While a number of options are being considered, the preferred outcome is the sale of most businesses in scope as going concerns,” Shell said in a statement.

The businesses likely to be sold distribute fuels, lubricants, liquid petroleum gas and bitumen in Morocco, Algeria, Tunisia, Egypt, Ivory Coast, Burkina Faso, Ghana, Togo, Senegal, Mali, Guinea, Cape Verde, Kenya, Uganda, Tanzania, Botswana, Namibia, Madagascar, Mauritius and La Réunion. South African LPG distribution is included in the review, but no other business units in that country will be for sale, Shell said.

Shell’s exploration and production businesses, liquefied-natural-gas interests and most international trading activities in Africa are also out of the scope of the review, it said.

Based on recent earnings and typical premiums for transactions of this kind, NCB Stockbrokers analyst Peter Hutton said the businesses could fetch a price of between $1.2 billion and $1.5 billion.

“But I don’t think anyone will come in and scoop the lot off their hands,” he said. More likely, Shell will sell the assets in four to six regional chunks to different buyers, he added.

“Early indications suggest there are a number of potential buyers interested in acquiring the businesses as going concerns,” said Xavier le Mintier, executive vice president of Shell Oil Products of Africa. “We will now enter into a round of negotiations, with a view to securing the optimum outcome for our shareholders, customers and staff.”

Local African companies are perhaps the most likely buyers for assets like these, said Mr. Hutton. French oil major Total SA, which is on the verge of joining a large oil project in Uganda, may be interested in some of the East African businesses, he said.

The sale of the African assets is part of a broader restructuring under Shell’s new Chief Executive Peter Voser. “This decision is part of our drive to refocus our global downstream footprint into fewer, larger markets,” Mr. le Mintier said. Shell said it plans to sell 15% of refining capacity and 5% of its retail sites to focus on more profitable areas.

“These businesses are profitable, but not material to Shell…for a smaller company, it’s worth doing,” Mr. Hutton said.

Shell pumps most of its money into mega projects such as Perdido, the deepest ever oil field in the Gulf of Mexico that began to pump its first oil Wednesday and will eventually produce over 100,000 barrels a day. Shell aims to raise $2 billion to $3 billion from asset sales this year to reinvest in similar Perdido.

Shell has been in talks with India’s Essar Oil Ltd. over the sale of three refineries in Europe. It recently sold its fuel distribution and refining business in New Zealand for a base price of NZ$696.5 million ($494.7 million). It is also in talks with buyers for its European LPG distribution business for about €1 billion ($1.35 billion).

Write to James Herron at [email protected]

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