Shell Petroleum Company Limited (SPCo) Plans to Divest Stake in Shell Pakistan Limited (PSX: SHEL)
According to a stock filing made on Wednesday at the Pakistan Stock Exchange, Shell Petroleum Company Limited (SPCo) has expressed its intention to sell its ownership share in Shell Pakistan Limited (SPL), which constitutes 77% of the local operations.
The filing further stated that any potential sale would be subject to a targeted sales process, the execution of binding documentation, and the necessary regulatory approvals.Despite this announcement, the filing reassured that SPL’s ongoing business operations would remain unaffected. SPL remains dedicated to providing safe and reliable operations for its customers and partners.A spokesperson for Shell confirmed that the company has witnessed strong interest from international buyers, emphasizing SPL’s commitment to ensuring the continuity of secure and dependable operations.
Shell Petroleum Company Limited, a subsidiary of Shell plc (Shell), aims to simplify its portfolio through the divestment of its holdings in Shell Pakistan Limited (SPL). SPL has been operating in Pakistan for 75 years and has established a significant presence in the retail and lubricants sectors. As the process unfolds, the sale will adhere to a targeted approach, encompassing the necessary legal agreements and regulatory authorizations.
Shell’s consideration to exit its domestic energy retail businesses in the United Kingdom, the Netherlands, and Germany was initiated earlier this year due to challenging market conditions prompted by EU authorities’ efforts to safeguard customers against rising energy costs. This decision seemingly prompted Shell to streamline its operations, including its presence in Pakistan.
While Shell intends to continue oil production until 2030, the company plans to expand its natural gas business to solidify its position as a leading player in liquefied natural gas (LNG) globally. This strategic shift may entail reducing operations in certain countries to maintain competitiveness in the sector.
Shell’s renewed focus centers on value creation with reduced emissions, enhanced performance, operational discipline, and simplification. The company anticipates increasing shareholder distributions to 30-40% of cash flow from operations (CFFO) throughout economic cycles, with a 15% dividend per share increase taking effect in Q2 2023. Additionally,
share buybacks totaling at least $5 billion are planned for the second half of 2023. Capital spending is set to be reduced to $22-25 billion per year for 2024 and 2025, while operating costs are projected to be structurally reduced by $2-3 billion annually by the end of 2025. Shell reiterates its commitment to climate targets, including achieving net-zero emissions by 2050.
Rao Jehangir Nasir, Business Editor at ProPakistani, highlighted that multinational businesses have previously scaled back or exited operations in unfavorable economic circumstances. Shell is the latest company to announce winding down operations in Pakistan, having experienced consecutive quarterly losses due to economic challenges such as currency devaluation, inflation, excessive taxation, and an unstable business environment.
SPL incurred significant losses in the first quarter of 2023, primarily influenced by the country’s prolonged economic crisis. In 1QFY23, the company recorded a loss of Rs. 4.6 billion compared to a profit after tax of Rs. 2 billion during the same period the previous year. The unprecedented depreciation of the Pakistani rupee and macroeconomic uncertainties contributed to this downturn.As of the filing, SHEL’s share price on the exchange was Rs. 89.17, reflecting a 7.5% increase or Rs. 6.22, with a trading volume of 4,287,500 shares on Wednesday.