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Attock Petroleum to bid for Chevron

April 09, 2013

KARACHI, April 8: Attock Petroleum Limited (APL) would participate in the bidding for acquisition of Chevron (formerly Caltex Oil Pakistan Limited) marketing affiliates in Pakistan, which includes 100 per cent shareholding in Chevron Pakistan Limited (excluding Lubricants Business) and 12pc stake in Pakistan Refinery Limited.

The decision by the APL Board, conveyed on Monday, appeared to have been prompted following the completion of due diligence which the company had announced it was to conduct on Nov 20 last year.

APL is the second party to be in the race for buyout of Chevron’s downstream fuel assets in Pakistan; Byco Petroleum Limited (Byco) being the other contender believed to be in the process of conducting due diligence for the acquisition.

The APL decision was warmly greeted at the Karachi stock exchange on Monday where the expensive APL stock rose by Rs1.68 to Rs498.51 on a tiny turnover of 17,300 shares.

“Chevron’s plans to exit Pakistan’s downstream space would eventually benefit existing players as the government focuses on key issues faced by the industry in an effort to improve the operating environment”, a research note by Mohammad Fawad Khan, analyst at KASB Securities an affiliate of Bank of America Merrill Lynch, said.

In Pakistan, currently there are 10 players in the oil marketing industry with aggregate volume at 20.27 million tons. Based on comparables, in the absence of availability of Chevron’s financials, the analyst put the deal size at Rs10 to 16 billion. A change in deal structure was thought to attract more players to make a bid.

APL and Byco were both thought to be strong contenders, because of having refining backup, strong financial muscle and intentions to increase their foot print. Exit of Chevron and acquisition by existing player was, however, unlikely to have any implication on prices and margin as most of fuel products were regulated.

For Chevron, strong position in high margin lube segment (23pc market share) remained a key jewel. KASB analyst had predicted a month ago that Chevron could decide to maintain its position in the lube segment. It has to be seen if Chevron decides to strip it off and sell separately in order to fetch better price.

Market watcher said that the operating environment for small players like Chevron had become increasingly difficult as a result of several factors including fixed-margin environment; competitive landscape in favor of integrated players (Chevron is standalone marketing company); fiscal regime (turnover tax); oil prices volatility and low operational and cost efficiency.

In regard to Chevron Pakistan Limited, another oil sector analyst pointed out that it was a part of Chevron Corporation, one of the leaders in the global integrated energy business. Chevron is headquartered in San Ramon California.

Following the merger of its parent companies – Chevron and Texaco – in 2001 and subsequent change of the parent company’s name from Chevron Texaco to Chevron in 2005, Caltex Oil Pakistan Limited was renamed as Chevron Pakistan Limited in 2006.

The company has operated in the sub-continent since 1938. It is presently engaged in the Fuels, Lubricants, CNG and LPG business in Pakistan. The company is marketing its products and services under the Caltex master brand.