Vitol buys Shell’s Australia refinery

February 22, 2014 - 12:00:00 am

An outside view of the Shell refinery in Geelong, south of Melbourne, Australia.

SYDNEY/SINGAPORE: Top global oil trader Vitol SA is buying Royal Dutch Shell’s  Australian refinery and petrol stations for about $2.6bn in its biggest acquisition, looking to grab a share of a growing oil product market.

The purchase will pit Swiss-based Vitol against arch rival Trafigura, which became Australia’s largest independent fuel retailer last year in a market where the less nimble oil majors are looking to cut losses.

Australia has become one of Asia’s biggest fuel importers, creating opportunities for traders as the majors have shut older, small refineries, under pressure to shift investment to oil and gas production that generates better returns. The Australian deal puts Shell comfortably on track to hit its target of $15bn in asset sales over the next two years, set by new chief executive Ben van Beurden as part of an austerity drive following a profit warning in January.  

So far this year, Shell has sold about $5bn of assets and analysts said the swift pace of disposals could prompt the company to raise its target.

“The speed at which Shell can sell relatively immaterial assets for billions of dollars highlights how unambitious its $15bn programme is. We would expect the disposal target to be raised in due course,” Investec analysts said.

Vitol Chief Executive Ian Taylor said he expects to make good returns from the business eventually, as the refinery, while small, was a high-quality plant, with good distribution chains into the Australian market.

Analysts said the acquisition made sense for Vitol even though Shell couldn’t run it profitably enough to keep it. “These two companies have different return expectations and targets they’re willing to accept,” said Craig Pirrong, Professor of Finance at the University of Houston.

With the Australian purchase, which includes 870 service stations plus Shell’s bulk fuels, bitumen and chemicals businesses, Vitol is betting Australian fuel demand will continue to grow faster than in Europe, and eventually the world will be short of refining capacity.