In a surprise move, Saudi Aramco has reportedly acquired a 40% stake in Gas & Oil Pakistan Ltd (GO Petroleum). This is the second major development in Pakistan’s oil marketing space this year – both led by Saudi Arabia – with Wafi Energy earlier entering into a share purchase agreement to buy Shell Pakistan (SHEL PA).

Incorporated in 2015, GO Petroleum retails fuels and lubricants, backed by about 1,100 outlets and a storage capacity of 200k MT. It is the 2nd largest oil marketing company in Pakistan in terms of retail outlets. However, its market share has fluctuated between 6-8% in the last three years, making it smaller than SHEL, APL, and of course industry leader PSO (market share: 50%).

Valuation

Pricing details have not been divulged as yet. However, we take our bearings from our assessed intrinsic value of US$200mn for SHEL to tentatively price the GO deal. Given GO’s smaller market share (FY21-FY23 market share: 6.9% vs. 7.7% for SHEL), including in the lubricants business, and the lack of a brand value comparable to SHEL, we think the deal may price GO between US$100-150mn. A 40% stake at this valuation range translates to US$40-60mn. We understand that Vitol Dubai Ltd has a 10% share in GO Petroleum but it is unclear at this point if this is part of the 40% stake being acquired by Aramco. It is likely but not certain that Aramco will take over management rights.

Aramco enters Pakistan

The GO Petroleum deal will be Aramco’s first investment in Pakistan, and comes on the heels of its earlier moves to acquire Valvoline’s global operations and Chile’s Esmax Distribution SpA. That said, the GO Petroleum investment will likely be very small in comparison to these other overseas downstream ventures. This leads us to think it may well represent a testing of the waters, with Aramco reportedly also interested in setting up a mega refinery project in Pakistan.

Impact on competitors

If GO Petroleum expands rapidly it could eat into the existing market shares of competitors. At present, given its major presence on motorways and the North region, GO primarily competes with HASCOL and APL, while urban centers are dominated by PSO and SHEL. A possible expansion into the South region will impact the latter two companies more. For now, we retain a Buy stance on both PSO and APL, with PSO our top pick based on continuing energy reforms and hopes of circular debt getting addressed.

Courtesy- Intermarket Securities Limited.