Why Lukoil buys Shell gas stations in Russia

Lukoil will buy the Russian “daughter” of the British-Dutch oil and gas company Shell, which owns a refueling network and a lubricant plant in the country, the company said. We are talking about 411 gas stations located mainly in the Central and North-Western federal districts, as well as a plant for the production of lubricants in Torzhok, Tver region with a capacity of 200 million liters per year, according to Lukoil.

“The acquisition of Shell’s high-quality business in Russia is fully in line with Lukoil’s strategy to develop priority sales channels, including the retail network, as well as the development of the lubricants business,” said Maxim Donde, vice president of Russian oil sales.

In turn, the director of the downstream segment Shell Heibert Vigeveno stressed that after the signing of the agreement, more than 350 employees will retain their positions. The transaction will be completed after receiving FAS approval (Vedomosti sent a request to the service).

After the start of a special Russian military operation in Ukraine on February 24, 2022, a number of major global oil and gas companies, including Shell, announced the closure of activities in Russia. Shell announced its withdrawal from the Gazprom and Gazprom Neft projects Sakhalin-2, Salym Petroleum Development, Gidan Energy, and withdrew from the Nord Stream-2 export pipeline project. In early May, the Anglo-Dutch company published a report for the first quarter of 2022, which reported a write-off of $ 3.89 billion due to withdrawal from projects in Russia. On May 6, Shell Neft CEO (Russian subsidiary Shell) Sergei Starodubtsev announced the imminent suspension of the company’s gas station network in Russia and the Torzhok plant to sell the assets to a new owner.

In early March, Lukoil became the owner of ESA, one of the largest networks of independent gas stations and car washes in Moscow and the Moscow region. Prior to this deal, Lukoil had more than 5,000 gas stations, more than 2,600 of which were in Russia. The deal with ESA was approved by the FAS, but with a number of restrictions. In particular, the FAS obliged Lukoil to sell at the gas station not only premium fuel with various additives, but also basic (Vedomosti wrote about it on March 24).

According to Andrei Tenishev, head of the Department of Competition Law at the Russian Academy of Sciences, former head of the FAS’s anti-cartel department, the deal is likely to be approved by the antitrust agency. He did not rule out that, as with the purchase of ESA gas stations, the FAS may impose certain obligations on Lukoil. “But what exactly they will be, it is difficult to say now,” the expert concluded.

Also in early May, Lukoil acquired a 50% stake in a joint venture with Gazprom Neft based on Meretoyahaneftegaz in the YNAO. The deal amounted to 52 billion rubles.

Given the peculiarities of regional markets, the current deal to buy 411 Shell gas stations could cost Lukoil 2.5-2.7 billion rubles, according to Dmitry Gusev, vice president of the Independent Fuel Union (NTS, which unites small independent gas station networks). According to him, this step does not mean that the company has changed its strategy and made projects in the domestic market its priority.

“Shell gas stations are a premium segment, these gas stations have a very good location on the largest routes. In carrying out this deal, Lukoil is buying not only the gas stations themselves, but also premium customers who are willing to overpay for a well-known brand, ”he said.

But if we focus on similar deals concluded in recent years, the cost of gas stations bought by Lukoil could be much higher – about 40 billion rubles, said the director of the corporate rating group ACRA Vasily Tanurkov. The expert reminded that in 2021 Tatneft purchased 75 gas stations from the Finnish company Neste in northwestern Russia. The total amount of the transaction amounted to 10.8 billion rubles, so the cost of one gas station on average exceeded 140 million rubles. Tanurkov stressed that taking into account the circumstances against which the transaction takes place, the sale could be carried out at a discount of up to 50%.

Tanurkov also added that the cost of building the plant in Torzhok in 2012 was about $ 100 million, but taking into account depreciation, its cost should be “significantly lower.”

According to Rosstat, as of May 6, the average consumer prices for gasoline were 50.72 rubles per liter (AI 92 – 47.33 rubles per liter, AI 95 – 51.40 rubles per liter). In the Central Federal District, the average price on May 6 was 50.88 rubles per liter, in the Northwest – 51.10 rubles per liter.

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