The joint venture between Shell and Moscow-based Alliance Group entails the Shell brand appearing on some 150 filling stations throughout Ukraine.
Royal Dutch Shell is extending its presence in Ukraine through an agreement to create a joint venture with a Russian oil company that will give the country its first Western-brand filling stations.
The joint venture between Shell and Moscow-based Alliance Group, which controls a major Ukrainian oil refinery, entails the international Shell brand appearing on some 150 filling stations throughout Ukraine.
Shell and Alliance announced the deal in Kyiv on March 29, nine months after they had inked a trademark licensing agreement that launched the pilot branding of around a half-dozen Alliance filling stations.
It was also only last year that Shell inked the first major hydrocarbon exploration and production agreement in a leading Western energy major, giving the multinational an interest in eight promising oil and gas fields.
Now Shell is well-placed to make a bid for Alliance’s oil refinery in Kherson Region, putting it on par with the Russian oil companies that dominate in Ukraine.
The joint venture, which is to be finalized in the next couple of months, will yield Shell a 51 percent stake in Alliance’s gasoline filling station network in Ukraine. The Moscow-based energy group will retain a 49 percent stake. The value of the deal was not announced.
“With this joint venture, we are delivering our strategy to invest in growing markets,” said Rob Routs, executive director of Shell’s downstream business.
This gasoline station located on the highway from Kyiv to Boryspil International Airport was rebranded under the Shell name last year as part of a pilot program between the leading Western energy company and Russia’s Alliance Group. Their partnership has been expanded in a deal yielding Shell a 51 percent interest in 150 gas stations. (Konstantin Klimenko)
“Ukraine’s large population, projected GDP and its strategic location in Eastern Europe make it attractive and an important part of our future retail business in Europe. We welcome the opportunity to work with a company such as Alliance, a respected organization with expertise in Ukraine, and look forward to developing our cooperation.”
Attaining a stake in Ukraine’s promising gasoline-filling station business is a small but important step for Shell. The JV will control about 3 percent of Ukraine’s downstream petroleum market in the near term. Expansion plans should help capture an additional 10 percent of the market within several years, Shell and Alliance officials said.
“I am confident that our joint venture will be beneficial for both parties and will make an important contribution to development in the economic and social spheres in Ukraine,” said Musa Bazhaev, the Chechen president of Alliance Group.
Alliance, which is expected to transfer its share in the joint venture to a Cyprus-based company, has announced plans to issue an IPO this year.
Its joint venture with Shell will give Alliance better financing and marketing for its filling stations and possibly an exit strategy from the market, as more Western players move in.
Ukraine’s energy market has been dominated by Russian and domestic business groups since independence, but the arrival of a pro-Western leadership after the Orange Revolution of 2004 opened the door to Western energy giants.
Last year, Ukraine granted an exploration and production license for a deep-water field in the Black Sea off the coast of the Crimean peninsula to Texas-based Vanco Energy. Vanco and the Ukrainian government are currently finalizing the details of a production-sharing agreement for this potentially large hydrocarbon field.
British Petroleum has a share in Ukraine’s petroleum market through its interest in Russian-British TNK-BP, which supplies a franchise of 1,000 petrol filling stations in Ukraine operating under the TNK brand.
According to Ukrainian Petroleum Consultants (UPECO), in all, Ukraine boasts about 6,000 filling stations, run by such companies as Russian Lukoil, Ukrnafta, WOG, Alfa-Nafta and OKKO, in addition to TNK-BP and Alliance.
Shell opened an office in Ukraine in 1992. The global group of energy and petrochemical companies operates 46,000 Shell service stations in more than 90 countries, reporting income of almost $5.3 million in the last quarter of 2006.
