British Petroleum (BP) is Monday set to sign a local lubricants distributorship deal with KenolKobil, signalling a thaw in relationship with the UK-based oil major, following a legal tussle between the two companies over an agency contract.
The signing will enable Kenolkobil to continue distributing the Castrol-branded lubricants which will potentially strengthen its financial health.
Kenol has been on the rebound from a record Sh6.3 billion loss reported in 2012.
The recovery is partly driven by the recent lower oil prices and an aggressive reduction of its debt load.
“The company is increasingly looking more stable and has improved relations with international oil marketers, some of whom are trading with Kenol on open credit terms, thus providing more tools for the oil marketer to be more aggressive,” said Standard Investment Bank (SIB) in its latest market outlook on the company.
“From a profitability standpoint, subsidiaries contribute around 40 per cent of profitability,” the report said, adding that the rebounding oil prices will have little impact on the financial position of the firm.
Kenol, which is Kenya’s third-biggest oil dealer by market share after Total and Shell, has spread its footprint to Tanzania, Uganda, Rwanda, Burundi and Ethiopia.
The oil marketer had been locked in a long tussle with the UK company after BP, the owner of the lubricant, sought to repossess the brand from Kenol and award it to its former partner Shell.
Kenol had a deal to supply the Castrol lubricants with initial owner of the brand, Burmah-Castrol of Scotland, but the supply contract was complicated after BP bought out the Scottish firm in 2000. BP exited the Kenyan market in 2007.
Kenol went to court in 2000 and stopped the handover of the supply deal to Shell, whose products are currently marketed by Vivo Energy.
Lubricants, a by-product of oil, are mostly used in reducing friction in machines, mostly in automotive, industrial, fishing, racing, mining and aviation industries.
Unlike motor petrol, its prices are not controlled by the Energy Regulatory Commission (ERC) and analysts reckon that the products offer high profit margins.
Kenol returned to profitability in the year ended December 2013, with a positive bottom line of Sh558.4 million. In the period to December 2014, the marketer reported a net profit of Sh1 billion.
The growth was helped by asset sales and aggressive cost-cutting measures.
“In 2015, it is looking to shore up on non-fuel business (rental income) in Kenya, in partnership with Inscor by rebuilding two major stations in Nairobi (South B and South C) as well as in other towns such as Narok (targeting tourist market on the way to Maasai Mara) and Kilifi (Mtwapa),” SIB said.
Kenol’s Pan African expansion strategy suffered in 2013 when its potential acquirer, Puma Energy, dropped its bid for the oil marketer without giving reasons.
“KenolKobil is no longer looking at being acquired in the near term (one to two years),” noted the SIB report.
It sold its Kenyan business to partner Shell Petroleum Company, which later sold 80 per cent of its Africa operations to PE firm Helios and commodity trader Vitol in 2011.
Shell and BP had a joint venture whose assets included 130 retail stations, aviation fuels, lubricants and 17 per cent of the oil major’s shares in Kenya Petroleum Refineries (KPRL).
The shares were sold to India’s Essar, which in turn resold them to the Kenyan government.