Chevron Corporation is set to divest its 75% stake in its South Africa business to Asia’s largest oil refiner, China Petroleum & Chemical Corporation SNP, which is better known as Sinopec. With the deal, Sinopec will secure its first major refinery in the continent, keeping in line with its aim to expand in international markets.
Per the deal, Sinopec will acquire the 75% controlling stake in Chevron’s South Africa and Botswana assets including a 100,000 barrel per day oil refinery in Cape Town, a lubricants plant in Durban and a network of around 820 gas stations. Local shareholders will own the remaining 25% interest. The deal is valued at $900 million and is subject to approval by regulatory authorities.
Sinopec will continue with Chevron’s Caltex brand name for the retail fuel stations for around five years until it forms a rebranding strategy. The company will also be making technological upgrades at the acquired assets to meet local demand and drive growth of the indigenous oil industry.
The deal is well aligned with Chevron’s $15 billion divestment program announced in 2014 as the company is focusing on balancing its global portfolio with its long-term business priorities. It will help Chevron to slash costs and streamline its business models amid plunging oil prices.
The state owned Chinese company Sinopec had invested around $6 billion in downstream business in many countries across the world in the last five years. If this deal is finalized, it will mark the company’s foray into South Africa, which provides a large and growing market with proper regulatory framework for import parity pricing. The deal will enable Sinopec to increase its market share and revenues in the fuel retail market. Moreover, the overseas deal will help the company to hedge its bets on China’s economy as the country is witnessing declining oil demand and is shifting its focus to other less-energy intensive sectors for growth.