By Sarah Thompson, Anthony Macdonald, Joyce Moullakis

Oil supermajor BP has flown executives to Australia in recent weeks, as it considers an offer for Woolworths’ extensive network of petrol stations.

Street Talk understands London Stock Exchange-listed BP has been running the numbers on the $1.5 billion-odd business, seeking to capitalise on Woolworths’ new management team and board which has demonstrated it is willing to consider all options for the company.

Woolworths operates about 500 convenience stores under the Caltex brand, selling more than 4 billion litres of fuel per year. Sales at Woolworths petrol division were worth $5.63 billion last financial year.

Analysts reckon the business would be worth up to $1.5 billion.

Woolworths investors have long thought about the supermarket giant’s petrol business as a potential divestment. However, most would point to the cashed-up Caltex as the most likely buyer given the close relationship between the pair. 

Woolworths operates half the Caltex-branded sites, earning a retail margin on fuel and convenience store items sold. Caltex is the wholesale supplier.

While Caltex would be expected to show interested should the division formally come up for sale, Woolworths would likely need to test the market more widely to help value the business.

Spokeswomen for both Woolworths and BP declined to comment.

The question for BP – and other potential interested parties – is what sort of deal Woolworths has with Caltex in terms of pre-emptive rights should the supermarket company seek an exit.

The other question is what the competition regulator would make of any deal. Petrol has been a sector of much focus for the Australian Competition and Consumer Commission in recent years, including merger and acquisitions and the advertising and use of fuel discounts.

BP already has an extensive footprint in Australian petrol stations. The company supplies fuel to about 1400 service stations, most of which are independently owned. The UK-listed company also has exploration, production and refining operations in Australia.

BP’s BP Australia Investments Pty Ltd has 10.9 per cent of the fuel retailing market across the country, according to IBISWorld data, while Caltex Australia has 16.6 per cent, Woolworths owns 21.4 per cent, Wesfarmers has 21.4 per cent and 7-Eleven Stores control 6.1 per cent.

The Woolworths board, does however, already have its work cut out for it as directors navigate divestment plans in the hardware sector.

Citigroup is advising on that process which includes Masters, a joint venture between Woolworths and United States retailer Lowe’s, and Home Timber & Hardware.

Extracted in full from the Australian Financial Review.