British multinational oil and gas company Shell does not aim to exit SA but is disposing of its “noncore” retail business, which houses its service stations, as it turns its focus on its upstream operations, which are facing serious legal challenges from environmental groups.
Business Day understands that Shell’s top brass have informed mineral resources & energy minister Gwede Mantashe of its plans to sell its retail (downstream) business but to keep its upstream business.
The upstream business includes exploring for and extracting crude oil, natural gas and natural gas liquids. The downstream business houses more than 600 service stations countrywide.
Shell said it had undertaken a comprehensive review of the downstream and renewables businesses across all regions and markets in line with Shell’s focus on performance, discipline and simplification. It had decided to reshape the downstream portfolio and intends to divest its shareholding in Shell Downstream SA. Considering its illustrious history, this decision was not taken lightly, it said.
“During the divestment process, we will work to preserve Shell Downstream SA’s operating capabilities, maintain the Shell brand presence and secure the best possible outcome for our people and customers in SA under new ownership.”
Shell said it was not selling its 50% stake in SA Petroleum Refineries (Sapref), a joint venture with BP Southern Africa. The 180,00 barrel-per-day refinery, SA’s largest, is located in Durban and has been idle since 2022 amid uncertainty over the timing of the introduction of new rules meant to reduce sulphur emissions.
Entered agreements
Shell’s decision to put up for sale its downstream operations in SA is part of the wider group’s efforts to lessen its exposure to the downstream business. Reuters reported on Monday that Shell was in talks with Saudi Arabia’s state-owned Saudi Aramco to sell its petrol station business in Malaysia.
The oil and gas major in November also entered into a sale and purchase agreement with Brazil’s state oil company, Petrobras, relating to the divestment of its downstream businesses in Uruguay and Paraguay as well as “certain assets” in Colombia. Shell recently disposed of its downstream business in Pakistan to Saudi Arabia’s Wafi Energy.
The group last year combined its oil and gas production and liquefied natural gas divisions as part of CEO Wael Sawan’s first changes since taking charge. The downstream business was combined with renewables & energy solutions to form a new downstream and renewables directorate.
A person with knowledge of Shell’s decision to exit the downstream business said the move was not a vote of no confidence in SA but rather a portfolio decision.
“Shell is staying upstream, meaning their operations in the Wild Coast and the Karoo. Because of a portfolio decision taken in London, they are only selling their retail business in SA,” the source said.
From a portfolio point of view “it is not an attractive business any more. Shell makes the bulk of its money in drilling gas and crude offshore. That’s the rump, and not the crumbs of service stations. The decision has nothing to do with the BEE partners [Thebe Investment].”
However, a dispute has erupted between Shell and Thebe, which owns 28% of the downstream business. Business Day understands that Thebe approached Shell in August 2023 looking to sell its stake in the business. However, Shell argued that the Thebe stake was worth “nothing”.
Partnership
Thebe, which wanted to free up funds to invest in other businesses, proposed to Shell that they undergo arbitration, a proposal the group rejected.
Thebe’s partnership with Shell is limited to the downstream business. The partnership started in 2015 when the two entities signed agreements that culminated in the merger of the Shell SA Marketing and Shell SA Refining businesses to form Shell Downstream SA.
Thebe refused to comment, saying it was still in “shock” about developments and “would comment at the right time”.
Shell’s upstream business in SA is facing several legal hurdles from environmentalists, calling into question the group’s long-term prospects in the country.
The group and local partner Impact Africa was in 2014 granted rights to explore the Wild Coast seabed by the mineral resources & energy department. Shell is the operator in the two Transkei and Algoa blocks and holds a 50% stake, with Impact holding the other half.
The company moved in 2021 to begin the exploration after the government agreed to renew the rights, despite protests from environmentalists and local indigenous rights activists.
Environmentalists successfully approached the courts, halting Shell’s offshore exploration for oil and gas deposits. Shell has since approached the courts to overturn the decision to halt its exploration for oil and gas along the Wild Coast. Its appeal is expected to be heard this year, with the outcome likely to go a long way in determining the group’s stay in SA.
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