Why Shell Oman went to market

More than any other petroleum company, Royal Dutch/Shell is like a chameleon, matching its presence to local conditions. This is most obvious in Oman, where its upstream joint venture, Petroleum Development Oman (PDO), even has an ammonite shell as its logo in a subtle reference to Shell's familiar pecten. Shell holds 34% of PDO and is operator of PDO's fields and holds 30% and operatorship of the Oman LNG project (see related story, p. 29). The government owns the 85,000 b/d Mina

April 6, 1998

3 min read

David Knott
London
[email protected]

More than any other petroleum company, Royal Dutch/Shell is like a chameleon, matching its presence to local conditions.

This is most obvious in Oman, where its upstream joint venture, Petroleum Development Oman (PDO), even has an ammonite shell as its logo in a subtle reference to Shell's familiar pecten.

Shell holds 34% of PDO and is operator of PDO's fields and holds 30% and operatorship of the Oman LNG project (see related story, p. 29). The government owns the 85,000 b/d Mina Al-Fahal refinery at Muscat, but Shell designed and built it.

The only Omani company Shell owned outright was retail unit Shell Marketing (Oman) Co., yet in October last year, Shell sold 51% of its interest to private shareholders on the Muscat Securities Market.

The reason for the sale, of course, was financial. By selling part of the stock to locals, Shell reduced its tax payments enormously and thus gained an advantage over its biggest rival.

Uncertainty

Tim Ford, managing director of Shell Marketing Oman, explained that Oman's 700 million l./year retail market is divided among Shell, BP Oil Ltd., and state-owned Al Maha.

An Omani retail presence is worth fighting for: Shell's average Omani retail outlet sells 6.3 million l./year of fuel, about 54% higher than its nearest rival and double the throughput of a typical Shell U.K. outlet.

In 1996, Shell had 69% of Oman's retail market with 115 stations, BP held 29% with 75 stations, and Al Maha held 2% with eight. But foreign investment laws helped Al Maha expand rapidly since then.

"Shell floated its share in Shell Marketing Oman," said Ford, "for several reasons. Foreign companies can only operate in Oman by royal decree, and since 1970, our franchise has been renewed every 10 years.

"There was no reason to expect this would change in 2000, but we could not plan with certainty. Terms could change, but we saw that, by becoming an Omani company, we would not have this problem."

So Shell kept 49% of its marketing unit and floated 51%. This was taken up by about 10,000 small shareholders. Many of these are Shell employees, who were allowed to buy on a preferential basis.

Tax lure

"The Omani government is moving towards privatization," said Ford, "and has been evolving legislation for this over the last 2-3 years.

"For our flotation, though, taxes were the biggest incentive. As a foreign company, we paid 50%. Now we pay only 7.5%, but to get this rate we had to be majority Omani-owned."

For flotation, a new company-Shell Oman Marketing Co.-was formed by combining two existing firms: Shell Marketing Oman and Oman Lubricants Co., owned 45% by Shell and 55% by local family businesses.

"The offer was 32 times oversubscribed," said Ford. "We reckon it was a success because of the buoyancy of the Muscat market and also public perception of Shell."

Another factor behind the flotation was the establishment of Al Maha in 1993. Government decided to give Al Maha a little help in gaining a foothold in the market by preventing foreign firms from building new retail stations.

"Shell's flotation allows us to build service stations again," said Ford. "BP is still 100% owned but is apparently now looking to do the same thing."