Vi­tol’s Turk­ish de­light at €1.4bn filling sta­tions deal

The foray into own­er­ship by trad­ing houses co­in­cides with a re­treat by some oil ma­jors

Financial Times Middle East - - Companies & Markets - NEIL HUME AND DAVID SHEP­PARD LON­DON

Vi­tol and other in­de­pen­dent oil traders are ex­pand­ing their petrol sta­tion op­er­a­tions, bet­ting that they can use their size to sup­ply filling sta­tions at lower costs than oil pro­duc­ers — some of which, in­clud­ing Royal Dutch Shell, are re­treat­ing from the sec­tor.

‘[Trad­ing houses] can sup­ply re­tail out­lets more ef­fi­ciently due to their size and trad­ing acu­men’

The world’s biggest in­de­pen­dent oil trader is dou­bling down on a strat­egy that some lead­ing crude pro­duc­ers have all but aban­doned — own­ing petrol sta­tions.

Vi­tol, the pri­vately owned com­pany that has grown un­der chief ex­ec­u­tive

Ian Tay­lor into a 6m bar­rel a day oil trader, this month fi­nalised its sec­ond largest ac­qui­si­tion by agree­ing to pay €1.4bn for Petrol Ofisi, a Turk­ish com­pany that owns more than 1,700 filling sta­tions.

Sell­ing petrol, diesel and take­away cof­fee to mo­torists may seem a pro­saic busi­ness com­pared with some of Vi­tol’s more eye-catch­ing deals, such as its move in 2015 to be­come one of the first trad­ing houses to buy large vol­umes of oil from Iraqi Kur­dis­tan.

But the ex­pan­sion of Vi­tol’s petrol sta­tion op­er­a­tions — it be­gan buy­ing such as­sets six years ago — is at the centre of a bet by the Nether­lands-reg­is­tered com­pany that it can use its global net­work of ships, stor­age ter­mi­nals and con­tacts to sup­ply the Turk­ish fa­cil­i­ties at lower costs than OMV, the Aus­trian oil pro­duc­erand cur­rent owner of Petrol O fi si.

“This isn’ t a new a strat­egy ,” says Chris Bake, the Vi­tol ex­ec­u­tive who led the Turk­ish deal, which has at­tracted fi­nan­cial back­ing from the in­vest­ment ve­hi­cle of vet­eran hedge fund man­ager

Ge­orge Soros. “We have al­ways tried to find as­sets that com­ple­ment the core trad­ing busi­ness.”

Vi­tol is not the only oil trader beef­ing up its pres­ence in petrol re­tail­ing. Last year, Trafigura an­nounced plans to buy a 24 per cent stake in Es­sar Oil, the In­dian oil pro­ducer, giv­ing the Sin­ga­pore-based com­pany ac­cess to 2,700 filling sta­tions in In­dia.

Trafigura has had a sig­nif­i­cant pres­ence in these sta­tions since the late 1990s, mainly through a sub­sidiary called Puma En­ergy that has fa­cil­i­ties across much of Africa.

Glen­core, the Swiss trader cum miner, this month made its first move into petrol re­tail­ing by un­veil­ing plans to in­vest $200 min a Mex­i­can joint ven­ture.

These for­ays by trad­ing houses into filling sta­tions have co­in­cided with a re­treat from the same area by some oil ma­jors in­clud­ing Royal Dutch Shell and

Exxon-Mo­bil. While the fa­cil­i­ties of­ten still carry oil pro­duc­ers’ brand­ing, many have been spun off to dif­fer­ent own­ers, as these ma­jors fo­cus on pro­duc­tion and re­fin­ing.

Craig Pir­rong, a pro­fes­sor at the Univer­sity of Hous­ton, says big trad­ing houses were able to use their size to sup­ply petrol sta­tion sat lower costs com­pared to oil pro­duc­ers.

In the past this was not pos­si­ble be­cause fuel mar­kets were not suf­fi­ciently de­vel­oped, but things have changed. “[Trad­ing houses] can sup­ply re­tail out­lets more ef­fi­ciently due to their size and trad­ing acu­men, which gives them a higher re­turn than the oil com­pa­nies ,” adds Mr Pir­rong.

Ev­i­dence of the lu­cra­tive op­por­tu­ni­ties comes from how in 2014 Vi­tol joined forces with the Abu Dhabi In­vest­ment Coun­cil, the Gulf sov­er­eign wealth fund, to fi­nalise the trad­ing house’s largest deal to date: the $2.6bn pur­chase of Shell’ s petrol sta­tions in Aus­tralia. Three years ear­lier, Vi­tol and He­lios

In­vest­ment Part­ners, an in­vest­ment firm, agreed to pay $1bn for Shell’ s petrol sta­tions in Africa.

Vi­tol has also bought filling sta­tion as­sets in Europe un­der the Varo brand. With the Petrol Ofisi deal due to com­plete in the third quar­ter, Vi­tol should own more than 4,500 petrol sta­tions world­wide.

In Turkey, Vi­tol aims to tap into two ma­jor trends: the coun­try’s fast-grow­ing pop­u­la­tion and the ad­vent of large re­finer­ies just out­side the Mediter­ranean basin that are pump­ing out huge sup­plies of cheap petrol and diesel. It plans to re­tain the Petrol Ofisi brand, which it says is the old­est petrol sta­tion name in the coun­try, and the most trusted.

Like Aus­tralia and much of Africa, Turkey is a “short” — trad­ing house jar­gon for a coun­try that is heav­ily de­pen­dent on im­ported re­fined fu­els. It is this sit­u­a­tion­that­p­re­sentsVi­tol­with­op­por­tu­ni­ties for high re­turns: it can use its trad­ing mus­cle and relationships with oil pro­duc­ers to sup­ply Petrol Ofisi.

“Turkey is a sig­nif­i­cant im­porter,” says Mr Bake. “Lo­gis­ti­cally it’s in an in­ter­est­ing lo­ca­tion.”

Strad­dling Europe and Asia, Turkey can draw its fuel sup­plies from Rus­sian oil pro­duc­ers to the north, or from re­fin­ers in the Mid­dle East and In­dia to the south and east. The lat­ter op­tion means Vi­tol can source fuel from gi­ant re­finer­ies owned by Saudi Aramco and In­dia’s Re­liance In­dus­tries.

Mr Bake says Vi­tol, which has en­joyed a cou­ple of years of bumper prof­its, has the ap­petite for more deals but ac­knowl­edges that trans­ac­tions such as Petrol Ofisi do not come along very of­ten. He adds: “But we are in a fairly strong po­si­tion at the mo­ment. We have the abil­ity to trans­act at this sort of level with­out stress­ing the bal­ance sheet.”

An­drew Ca­ballero-Reynolds Bloomberg

Vi­tol is bet­ting on us­ing its global net­work of ships, ter­mi­nals and con­tacts to sup­ply the Petrol Ofisi chain in Turkey

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