Shell’s exit plan raises questions about Kenya unit

Questions over whether Kenya Shell will continue to operate in the country have deepened further after its parent company — Royal Dutch Shell — announced it would exit more than a third of its current fuel distribution and marketing operations.

Royal Dutch Shell in its annual brief to investors stated that it still plans to exit from 35 per cent of its current downstream businesses across its portfolio with 20 of 24 Africa retail outlets targeted.

However, it noted that it will boost its presence in South Africa and Egypt, further putting doubts over its stay in the Kenyan market—which has in recent years witnessed the exit of multinationals Chevron, BP and Agip because of low profit margins.

“Downstream continues to focus on profitability, with plans to exit 15 per cent of refining capacity and 35 per cent of retail markets, and growth investment to enhance the quality of manufacturing and marketing portfolios,” said chief executive, Peter Voser, in the update report, adding that 5,000 employees would be leaving the company as part of restructuring.

Kenya Shell declined to disclose details on any current negotiations the firm may be currently engaged in with suitors for its assets.

“As part of our strategy, we talk with third parties from time to time. Any conversations are confidential. We understand that these matters can cause a wide degree of interest, but we can make no further comment at this time,” said an e-mail response from the firm’s communications department.

However, the company said it would focus on upstream operations and will only retain profitable operations across the globe.

“Like any competitive business, Shell actively manages its global portfolio and is always seeking opportunities to improve profitability. We continuously review our global downstream portfolio in line with more upstream, profitable downstream approach to capital allocation,” it said.

Shell’s exploration activities span four African operating markets— Gabon, Nigeria, South Africa and Egypt—to imply that these are the four markets the company would like to retain operations.

During 2009, Shell increased its exploration fields, completing acquisitions of new exploration licences only in Egypt and South Africa.

In Egypt, Shell has agreements to acquire a 40 per cent holding and become the operator on the Alam ElShawish West Concession, where oil and gas discoveries have been confirmed.

Shell has also agreed to an asset swap to acquire assets in Gabon in return for its interest in Norwegian offshore fields.

The firm also has proven reserves made in Nigeria , along with other markets that account for eight billion barrels of oil.

“As new projects come on stream, the company expects cash flow from operations will increase by around 50 per cent from 2009 to 2012 in a $60 per barrel oil price world, and by over 80 per cent with $80 per barrel oil prices,” said Mr Voser.  

Early this year, it however, denied news wire reports about negotiations with four firms as it prepares to exit Africa.

By making an offer to only four partners, the group’s strategy was 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.