5 April 2010

Uganda: Shell Kenya Exit to Dull Market Share

Nairobi — Shell Oil Products last week confirmed that it is exiting the Kenyan market in a move that sets the stage for fresh realignments in the local competitive oil market.

The firm said in a statement from Johannesburg that it is exiting 21 African countries including Kenya as it turns its focus on the lucrative oil exploration and production business.

"This decision is part of our drive to refocus our global downstream footprint into fewer, larger markets," Xavier le Mintier, executive vice president, Shell Oil Products Africa said in the statement.

Early indications suggest there are a number of potential buyers interested in acquiring the businesses as going concerns and we will now enter into a round of negotiations, with a view to securing the optimum outcome for our shareholders, customers and staff, he said.

Players in the oil market reckon that OiLibya is the front runner to snap up the assets at an estimated price of $2 billion (about Shs4 trillion) for Shell's African operations.

If this comes to pass, it would alter the market share landscape in the local oil industry catapulting OiLibya to the top of market rankings.

OiLibya market share stood 9.9 per cent in December and Shell's was at 17.2 per cent, which adds up to a combined market share of 27.1 per cent.

Total is the market leader with a 23.6 per cent share which it assumed upon acquiring Chevron assets last year.

Shell will be following in the footsteps of five other oil multinationals such as Chevron, BP, Mobil, Esso and Agip that have exited the Kenyan market in recent years citing low profit margins.

But Shell which is the third largest company in terms if revenues, suggested that its African operations are profitable, notably for relatively smaller firms.

"The businesses under review in Africa are profitable and professionally run. They have strong positions in their respective markets and offer ample scope for growth to owners willing to invest in them," said Mr Mintier.

New entrant

As western multinationals continue to reduce their presence in East Africa, oil firms from Asia and North Africa have been keen to increase their foothold in the region

For instance, OiLibya made an entry into Kenya in 2007 after acquiring Exxon Mobil while India's Reliance Industries Limited acquired Gapco in April 2007.

Essar from India also acquired a controlling stake in Kenya's sole refinery last July and have announced plans to enter the retail market through a buyout of an existing player.

Source at Energy Regulatory Commission reckon that the exit of Shell look set to dampen the market share war that has translated in lower margins and reduced prices at the pump.

"Kenya Shell has been a moderating force in terms of prices," said an ERC director.

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