After months of speculation that it would do so, Attock Petroleum – Pakistan’s third largest oil marketing company – has announced a bid to acquire Chevron Pakistan, the fourth largest oil retailer in the country.

The announcement came through a letter send to the Karachi Stock Exchange on Monday, indicating that, after having conducted due diligence for the past four months, the board of directors of Attock Petroleum are ready to make a bid to acquire 100% of Chevron Pakistan. The company has not yet indicated any initial bid price.

Attock appears to be the first of the three parties that had begun due diligence to make an actual bid. The other two are Byco Petroleum, an oil refining and marketing company, and the Nishat Group, a diversified conglomerate with interests in banking, textiles, cement, and power.

Analysts view Attock as the strongest contender for Chevron’s assets in Pakistan, which include 540 retail outlets that operate under the Caltex brand name. Chevron’s share in the Pakistani market comes to about 5%, placing it in fourth place behind Pakistan State Oil, Shell Pakistan, and Attock Petroleum. It is the largest petroleum retailer not to be listed on the Karachi Stock Exchange.

In addition to its retail outlets, Chevron has 12 storage depots with a capacity of about 12,000 tons, an 11% stake in a cross-country white oil pipeline, and a 12% stake in Pakistan Refinery. The company also has a relatively high market share of about 27% in the high-margin lubricants segment.
For the financial year ending June 30, 2012, Chevron Pakistan had revenues of approximately Rs108 billion, up about 35% compared to the previous year. For the past three years, the company’s revenues have grown at about 17% per year.

Attock Petroleum is the third largest oil retailer in the country and owns about 350 retail outlets spread across the country, though mostly on highways and major thoroughfares close to industrial areas. In addition to bidding to acquire Chevron Pakistan, Attock is also investing aggressively in organic expansion by building more retail outlets of its own. For the financial year ending June 30, 2012, the company had revenues of Rs153 billion, up 39.7% compared to the same period in the previous year.

The company is part of the Attock Group, the largest private-sector energy conglomerate in Pakistan by revenues. In addition to Attock Petroleum, the group owns Attock Refinery and National Refinery, and Pakistan Oilfields, an oil exploration and development company. It also owns Attock Cement, a construction materials manufacturer.

Were Attock to be successful in its bid to acquire Chevron, it would be acquiring assets quite complementary to its own network. “Most of Chevron’s retail outlets are in Sindh, whereas Attock has most of its outlets further up north. It would also be gaining access to outlets in prime retail locations,” said Hussain Yasar, a research analyst at KASB Security, an investment bank.

While a bid price has not yet been announced, analysts expect Chevron to accept bids between Rs15 billion and Rs17 billion. If the other two parties that have publically indicated interest go ahead with their bids, the price may rise to as much as Rs20 billion, especially since Total SA is rumoured to be interested in bidding as well.

Chevron announced on March 13, 2012 that it was exiting the retail business in Australia, Egypt and Pakistan. The company did not offer much in terms of details, though the announcement seems to be part of the worldwide trend of the major global oil companies shedding their downstream assets – refining, marketing and retail sales – to focus on the more profitable upstream businesses, such as oil and gas exploration and development.
The market’s reaction to Attock’s bid was somewhat muted. In Monday’s trading on the Karachi Stock Exchange, Attock Petroleum’s shares closed at Rs498.51, up just 0.34% for the day.