"Ukrnafta is acquiring Shell gas stations in Ukraine. What is the company's purpose behind this move?"

If everything goes according to plan, soon the state-owned "Ukrnafta" will become the majority owner of a network of 118 gas stations. The fate of the minority stake in the company is also expected to be resolved in the near future.

Why did one of the largest companies in the world decide to exit the Ukrainian market, and what plans does the new owner have for its assets?

Beginning of operations in Ukraine and initial challenges

The story of Shell in Ukraine began a year before the global financial crisis of 2008. "The retail business in the form of gas stations has never been a core focus for the company; they are not 'sellers', but more extractors," notes oil products market expert Hennadiy Ryabtsev.

"The history of Shell in Ukraine is complex. Initially, the company had to abandon agas extraction project in the Donetsk region, followed by the annexation of Crimea and the loss of part of its gas stations. Later, theyterminated the agreement for gas extraction in Kharkiv region," adds Serhiy Kuyun, director of the "Consulting Group A-95".

After this, a complete exit from the Ukrainian market, according to experts and market participants interviewed by EP, became a matter of time. Ultimately, the final decision for a complete exit only materialized in 2024.

According to sources from EP, negotiations over the potential sale of the stake in the network began in the summer. "The company has stated that this will be a competitive process, but the key for them is to exit Ukraine as quickly as possible," said an EP interlocutor close to the deal.

The reason for this move is evidently linked to the recent decision by the High Anti-Corruption Court (HACC) regarding the nationalization of 49% of the company owned by Russian Eduard Khudainatov, who owns the gas station network in Ukraine.

Shell categorically disagreed with such a decision. "Such unjustified appropriation of foreign investments and Shell's assets by Ukraine contradicts international law, which protects international investors. Of course, we will do everything possible to protect our employees, assets, investments, and reputation," the company stated. Following this, Shell decided to exit Ukraine. The sooner, the better.

Why does "Ukrnafta" need these gas stations

Owning 51% of the shares will give "Ukrnafta" complete operational control over the company "Alliance Holding". According to its charter, the management of the state company will be able to make all operational decisions. "Among the key plans of the company is to expand the network of gas stations through acquisitions and construction, modernization, and enhancing the operational efficiency of existing ones," emphasizes an EP interlocutor at "Ukrnafta".

If the deal is finalized, the state company will gain 118 gas stations across 20 regions. Seven remain in temporarily occupied territories, and the same number are stopped, but some of them are planned to be launched in the near future.

"It is important that 34 out of 118 operating stations are located in Kyiv and the surrounding area. In the capital region, we only have 17 gas stations. Kyiv and the region represent the largest sales market, accounting for about 10% of the entire country. Shell stations complement the existing ones and give us an advantage over competitors," explains an EP interlocutor at the state company.

He adds that during the negotiations, they managed to significantly lower the price. A representative of "Ukrnafta" declined to disclose the exact sum of the deal, emphasizing that "the price is very reasonable."

A substantial portion of the deal will be financed through loans. "We have enough own liquidity, but this project must be self-sustaining. "Ukrnafta" will invest only a small part of its funds, while the rest will be financed by the bank. The money ("Ukrnafta's" – EP) will go either to dividends or to drilling wells," they added in the state company.

Another advantage of acquiring gas stations lies in the favorable locations of the complexes. "Shell was one of the first to build a network and chose the best spots. Over 15 years, they invested $470 million into this. The vast majority of their gas stations have modern buildings with shops, cafes, and restrooms," says an EP interlocutor at "Ukrnafta".

What’s next

The next step after signing the agreement on November 19, 2024, regarding the purchase of Shell's gas stations will be to apply to the Antimonopoly Committee for permission to concentrate.

Once obtained, "Ukrnafta" will be able to finalize the deal and acquire all rights and obligations of a shareholder. After that, the state company under the leadership of Serhiy Koretsky will begin supplying fuel to the new gas stations, and all Shell personnel will retain their jobs. A rebranding of the stations is expected to occur within a year.

If the deal is successfully completed, "Ukrnafta" will add 118 Shell gas stations to its existing 547, making the state company the largest player in the retail fuel market in Ukraine.

"Ukrnafta" will become the majority owner of the Shell gas station network, while 49% will remain under the control of the State Property Fund. The latter has expressed its intention to sell its stake, even mentioning interest from both Ukrainian and foreign oil companies. However, the competition has not yet been announced.

Will "Ukrnafta" compete for the second half of the shares? An EP interlocutor in the company emphasized that currently everyone is focused on acquiring the majority stake. "I consider it premature to comment on what will happen next. We need to acquire this asset first, and then we can discuss the next steps," he said.

"Shell's exit from Ukraine was expected"

According to Kuyun, Shell's exit from any country is not surprising. "Companies like Shell or BP, especially after the 2008 crisis, have already left certain countries, selling assets to local players, so there is nothing extraordinary about this for them," he explains.

From an economic perspective, he considers the potential acquisition of gas stations by "Ukrnafta" to be reasonable.

"Shell sells about 2,000 liters of fuel per day from one gas station in Ukraine, while "Ukrnafta" with its outdated gas stations sells 3,500 liters. Thus, everything they sell above 2,000 liters will be profit. The market margin for fuel right now exists, as does the demand for inexpensive quality fuel," Kuyun believes.

Expert Hennadiy Ryabtsev states that Shell intended to leave Ukraine much earlier, but for some reason, this process was delayed. "As soon as the gas extraction division left in 2015, the winding down of the retail business became a matter of time. It's strange that it took so long. I was sure they would leave much earlier," he says.

Regarding the rationale for purchasing the stations, Ryabtsev emphasizes that Shell gas stations are located in good areas, but it all depends on the deal amount. "If the price is