5 January 2010

Africa: Shell Denies Rumours of Planned Market Exit

Oil marketer Kenya Shell has denied reports that it plans to pull out of the country -- the second time it has brushed off claims that it was looking for a buyer of its East African operations.

The oil giant said it had no plans to exit from its fuel marketing and distribution business locally and 23 other operating companies under its Shell Africa subsidiary.

"We are not currently in negotiations with any third parties to sell our downstream business in Africa," said Kenya Shell in an email response to Business Daily.

Shell however, said it could in future divest from non-profitable operations while increasing its presence in upstream activities such as oil exploration.

On Tuesday, industry regulator-Energy Regulatory Commission (ERC) said Kenya Shell was yet to inform them about any impending exit.

However, industry sources said talks between Shell and Libya's Tamoil in neighbouring Uganda had reached an advanced stage with a view to a sale of all East African operations.

But asked about Shell's portfolio in Africa, Kenya Shell said that it would make no comment on the rumours surrounding the firm now in its 110th year of presence in this market.

"Like any competitive business, Shell actively manages its global portfolio and is always seeking opportunities to improve profitability. We can make no further comment at this time," it said.

Should the reports come to pass, Shell would becomes the sixth firm to leave the country after Chevron which traded locally as Caltex, Mobil, Esso, Agip and British Petroleum (BP). Most of the multinationals have cited depressed profit margins as responsible for their exits.

According to George Wachira, an industry analyst, the main thrust by the multinationals is in oil exploration and production , where about 80 per cent of their profits are made .

"Fuel marketing is no longer considered an attractive investment as competition has reduced profitability".

Multinationals are also restructuring their asset portfolios globally to enable them cope with oscillating oil prices.

"For multinationals who have stringent compliance requirements Africa is a very difficulty region. Cost of compliance in safety, health, environment and business ethics are also very high, " he added.

Industry experts say Shell is known for its innovations in specialised products, development of standards and price stabilisation for the industry.

"It is the consumer that loses when more multinationals leave. Kenya Shell has been a moderating force in terms of prices," said an industry expert.

Other analysts have however, termed as 'crowded', Kenya's market of 29 players.

On Monday, news wire reports stated that Shell had opened negotiations with four firms as it prepares to quit 20 out of the 24 African countries.

By making an offer to only four partners, the group's strategy is clear, to favour the exit of the entire company in specific regions at once. In 2008, Shell left 15 African countries, saying at the time that it wished to concentrate and develop its activities in its remaining operations.

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