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