Oil giant moves to exit SA

Shell, a household name in South Africa since 1902, is preparing to sell its local interests and exit the country, prompting a row over the value of its BEE partner’s stake in it. Legalbrief reports that the UK-headquartered giant, which has about 500 branded outlets in SA, is scrapping with its BEE partner Thebe Investment over what Thebe says is a $200m share of the multinational’s SA interests. The news coincides with global mining giant BHP's planned takeover of iconic SA miner Anglo American minus its local platinum and iron ore assets, prompting speculation that the move was a vote of no confidence. With elections around the corner, the BHP story had turned into a political issue, with government critics saying the move showed that SA was increasingly becoming unattractive to foreign investment. The Shell move may lead to similar speculation, notes the report. However, Shell is understood to insist the selloff in SA is for business reasons alone. The Sunday Times says it understands that the 22-year relationship between Shell and Thebe, regarded as one of the most successful and transformative broad-based BEE associations in the country, has hit rock bottom after Thebe’s proposal in August 2022 to exercise its pull option and sell its 28% stake in Shell Downstream SA (SDSA). The Sunday Times adds it also understands Shell intends to divest its 72% stake in SDSA and has informed Minerals & Energy Minister Gwede Mantashe and Trade & Industry Minister Ebrahim Patel of its intention to exit SA. 

Shell’s move has caused discontent and left shareholders in Thebe disgruntled. They have accused the oil giant of acting in bad faith. Insiders close to the impasse said the British-Dutch company had stalled Thebe’s pull notice for 21 months, which had led to Thebe losing out on some strategic energy and business services projects it was pursuing. Thebe instructed audit firm PwC in 2022 to conduct a valuation of its shares in SDSA, and it arrived at a figure of $200m, notes the Sunday Times report. ‘Thebe wrote them a three-page letter detailing that it needed the funds to grow its business, and it didn’t have to do that – it could have just written one line giving them a pull-option notice. Shell failed to respond to their view on the value for eight months. Instead, they reconstructed and changed all the numbers to come down to a zero value. In their annual financial statements of June 30 2022, there was value, but five weeks later ... the value changed to zero. There was a back and forth. They have been stringing Thebe along because they knew that they wanted to leave the country ... This was planned – no-one wakes up and decides they are selling and are leaving,’ said a fed-up shareholder. The Shell view on valuation is totally unjust, unacceptable, (and)  does not make sense ... Shell deal team insists on using completely different forecasts than those they themselves provided to Thebe. In determining its equity value, PwC and Thebe used what were then SDSA board-approved (and updated) plans and forecasts,’ said the shareholder. According to insiders, Shell insisted on using in its valuation new plans and forecasts developed in February and March 2023, which are different from those it had provided to Thebe before it decided to exercise its pull option.

The Sunday Times says it understands that Shell pushed for the impasse over the valuation of the shares to be referred to an independent audit firm that is not conflicted by way of past and present contractual relationships. ‘But the strange thing is that Shell insisted on using KPMG to conduct such (valuation), because all the other blue-chip audit firms were conflicted. Yet Shell did not disclose to Thebe that it has some relationship with KPMG, which KPMG disclosed to Thebe. (On this basis), it stated that it couldn’t conduct the valuation. KPMG has more than 300 projects in progress for the (Shell Group), which is a material conflict that Shell hid and omitted. That omission is disingenuous at best and, at worst, amounts to (acting in) bad faith,’ another aggrieved shareholder is quoted as saying by the Sunday Times.  According to insiders close to the dispute, Shell has since 2015 received close to $340m per annum in management fees, while Thebe has, in that same period, received about $2m in dividends, which has caused a rift in the partnership. Shell dismissed the report as speculation. None of the role-players in the dispute are quoted in the report.

Meanwhile, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has said it plans to assess environmental liabilities before it can allow Shell PLC to transfer onshore operations to a local player. As previously reported in Legalbrief Africa, Shell earlier this year said it had signed an agreement with Renaissance Africa Energy Co Ltd selling Shell Petroleum Development Company of Nigeria Ltd (SPDC) to the local consortium, in order to focus on deepwater assets and downstream gas activities in the West African country. A report on the Rig Zone site notes that several rights groups last month wrote to the commission, calling for the agency to block the divestment until Shell has taken financial responsibility for ‘legacy pollution’ from the infrastructure being transferred and until the technical capability of the prospective new owner has been established. The NUPRC said it had organised a ‘due diligence workshop’ on the divestment. The NUPRC said it has put in place a seven-pillar framework for assessing divestments. ‘These pillars encompass technical capacity, financial viability, legal compliance, decommissioning obligations, host community engagement, labour relations, and data repatriation,’ it said.

Full Sunday Times report

Full report on the Rig Zone site

Top executives of BHP on a charm offensive in Johannesburg this week are said to have told an array of stakeholders that their $39bn bid for Anglo American – minus its SA assets – is not a ‘must do’ transaction for the Australian mining giant. Business Times says it understands that BHP CEO Mike Henry led the mission to SA to meet various stakeholders including local shareholders of both companies, government leaders and other parties with an interest in the deal. The trip comes as the proposed takeover of the iconic SA mining house is mired in political controversy. Observers have said the exclusion of SA assets from the deal was largely because of tough operating conditions in the country, including the failure of Transnet, rising crime, water licence issues and rigid labour laws. Henry and his team would have explained to investors why they weren’t interested in Anglo American Platinum (Amplats) and Kumba Iron Ore, and allay concerns the deal was a vote of no confidence in SA. They also would have made it clear that BHP wouldn’t overpay for Anglo and would walk away if they no longer saw value in the transaction. Having spent a decade assuring shareholders that it would only pursue deals that make financial sense, BHP is expected to have strongly restated the view that it will not chase Anglo at all costs. Its proposal – which would create the world’s largest copper producer – is dependent on Anglo first unbundling its controlling stakes in Amplats and Kumba to shareholders.

Full Business Times report

Glencore is considering a bid for Anglo American, according to two sources, Reuters said in a report published by Business Day. On Friday, Anglo rejected a $39bn all-stock offer from BHP, a price that was a premium 31% above the target company's closing price on April 23. An approach from Glencore could spark a bidding war, but one of Reuters' sources said Glencore hadn't yet approached Anglo and that the discussions were internal and preliminary. Officially, a Glencore spokesperson said the company wouldn't comment on speculation. Another source previously said BHP was considering making an improved offer. It has until 22 May to make a formal bid. Anglo American and Glencore each own 44% of the Collahuasi mine in Chile, estimated to have some of the world’s largest reserves of copper. These assets are prized because copper is used in items from electric vehicles and power grids to construction and its demand is expected to rise as the world moves to cleaner energy and wider use of AI. Anglo American's share price has jumped since BHP's offer was made public and this came after it had been underperforming its peers following production downgrades and writedowns that led to a strategic review of its assets in February. Christopher LaFemina, an analyst at Jeffries, who assessed different takeover scenarios for Anglo American in a research note on 29 April, said Glencore could benefit from keeping Kumba in the Anglo stable and marketing iron ore. He said Glencore may also face less political pushback in SA, especially if it were to propose a straightforward all-share deal.

Full Business Times report