BP and Shell rethink petrol station ownership as investors press for portfolio changes

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BP and Shell petrol station rethink

Highlights

Shell has reduced its petrol station network from a 2021 target of 55,000 to about 40,000, exiting multiple international markets and narrowing focus to 10 priority countries.
BP is targeting a 10 percent reduction in its company-owned petrol station network in 2024 amid pressure from Elliott Management to sell its retail arm for higher value realization.
Valuation disconnect persists with BP's convenience and mobility division generating $6.2 billion EBITDA in 2023, while listed convenience operators trade at higher multiples and institutional investors demand renewed upstream oil and gas focus.

Portfolio cuts reshape retail strategy

As reported by the Financial Times, Shell and BP are shrinking petrol station portfolios that only a few years ago sat at the centre of their energy transition plans. Shell had targeted 55,000 branded stations by 2025 in 2021, but its network has instead fallen to about 40,000 as it exits markets including Pakistan, Indonesia, Mexico, South Africa and, most recently, France.

Chief executive Wael Sawan said in July that Shell is tightening investment around 10 priority markets out of the roughly 80 countries where it operates filling stations. Even while withdrawing from many countries, Shell says it will buy the remaining two-thirds of Tri Star Energy in the U.S., a business that runs about 300 forecourts.

BP is making a similar retreat after selling petrol station businesses in Switzerland, Turkey, the Netherlands and Austria. The company is aiming to reduce its company-owned network by 10 per cent against 2024, while activist investor Elliott Management argues the retail arm would be worth more under a specialist owner and should be sold entirely.

The debate has reopened a long-running strategic question over whether integrated oil groups should own stations directly or rely on franchise and supply agreements. ExxonMobil and Chevron moved to that lighter model long ago, while Shell and BP have kept a larger owned-and-operated presence and say they are concentrating on markets where they can supply their own fuel and command premium pricing.

Valuation gap and upstream focus drive pressure

Analysts say the case for a sale is strengthened by the valuation gap between retail assets and diversified oil groups. BP's convenience and mobility division, which includes petrol stations and EV charging, generated $6.2 billion in adjusted earnings before interest, tax, depreciation and amortisation last year, while listed convenience operators such as Alimentation Couche-Tard and Casey's General Stores trade at far higher multiples than BP and Shell as a whole.

Biraj Borkhataria of RBC Capital Markets estimates BP's petrol stations contribute about a tenth of earnings but could account for more than a third of its market value. Other European energy groups have already taken steps to crystallise that value, including Equinor's full network sale to Couche-Tard, TotalEnergies' disposal of German and Dutch sites, and Eni's separation of Enilive before bringing in KKR at a valuation of roughly 10 times ebitda.

Potential buyers could include specialist operators, private equity, supermarkets, Middle East national oil companies and commodity traders. Vitol already has exposure to more than 10,000 service stations, and bankers say forecourts remain attractive because they secure routes to market for fuel and increasingly combine convenience retail with restaurants, parcel collection, car washing and drive-through coffee.

Even so, BP and Shell are pulling back from a business that still offers relatively stable cash flow and lower earnings volatility. Their retreat also reflects slower-than-expected EV adoption, weaker demand for public charging because many drivers charge at home or work, and renewed investor demands to prioritise oil and gas production as the expected decline in hydrocarbons is pushed further out.

Our earlier article on activist pressure on Big Yellow outlined how two hedge funds built sizeable stakes and urged the UK self-storage group to explore strategic options, including a potential sale, arguing the shares were undervalued. We noted that this push came as the company traded near multi-year lows despite solid results, against a backdrop of increasing consolidation across UK listed real estate.

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