Viva Energy is being raised as a potential buyer of ExxonMobil’s New Zealand service stations, as analysts query whether now could be the right time to break ties with its major shareholder Vitol.
Analysts at Macquarie said in a research note that Viva Energy was now at a point where a review of its exclusive fuel supply agreement with Vitol is justified, ahead of the 2028 renewal.
The analysts said in the note that Viva could prepare to establish an independent trading and supply function, but could also negotiate the ability to tender competitively.
“If Viva could stand up its own independent fuel supply chain, we estimate it could add $100m to $140m of earnings before interest, tax, depreciation and amortisation over time.
“That is greater than 10 per cent of Viva’s normalised EBITDA of $1.1bn.”
Macquarie points out that Vitol is the largest independent oil trader in the world, trading about eight million barrels a day of crude and products, which is about seven per cent of global supply, with a deep global oil refining portfolio of 1.2m barrels a day of refining capability, and co-ordinating more than 6000 sea tanker voyages per year.
Vitol, however, now only owns 29.5 per cent of Viva Energy and has two board seats.
The analysts said that the governance structure, exclusivity and maturity of Viva Energy as a listed company justified a strategic review of the Vitol relationship with potentially significant economic upside for Viva Energy.
The analysts said that a five-year renewal on the same terms, including exclusivity, was unlikely to be acceptable to shareholders, who would be asked to vote on the deal in 2028.
The analysts said Viva should assess whether competitive tendering, partial insourcing or revised commercial terms could improve outcomes for non-associated shareholders.
The analysts said that the convenience rollout had been a focus, but optimising fuel supply could be more rewarding, in terms of return on capital.
Viva trades at a discount to rival Ampol, which ended its supply agreement with Chevron years ago, triggering Australia’s largest block trade in 2015 with the US oil major selling its 50 per cent holding in what was then called Caltex Australia for $4.8bn.
The move has proved to be a smart strategic play for Ampol which has capitalised on breaking its exclusive supply agreement with Chevron and building its own capabilities in that area of the business.
It had earlier closed the Kurnell refinery in Sydney and had been moving the focus of its business from refining to importing, selling and marketing fuel.
The analysts said Viva should be able to capture a modest recurring benefit from its own supply chain, and improve transparency, independence and optionality.
But Viva would need to assemble a high quality, experienced team with capabilities across the board.
Viva Energy’s shares have surged on the back of oil supply disruption from the Iran conflict and the Vitol stake in the business is now worth about $1.25bn.
The Swiss-headquartered energy and commodities giant, which is privately held by about 400 current and former partners, acquired Viva Energy in 2014 and listed it on the ASX in July 2018 at $2.50 per share.
It held the position untouched for more than five years before conducting its first selldown in 2023, offloading a 16 per cent stake in a $714m block trade handled by Bank of America and UBS – the two banks closest to any future transaction.
Before oil supply shortages gripped the sector, Viva Energy was out of favour with investors, and analysts believed the company overpaid for the On The Run chain it bought from Peregrine in 2023 for $1.15bn and that performance of the business had failed to live up to expectations.
Still, there’s speculation that Viva Energy is mounting a push to buy ExxonMobil’s 150 service stations in New Zealand, which are soon to hit the market via a sale process run by Barrenjoey.
When Ampol purchased rival Z Energy in 2021 for $1.9bn, the deal was considered to be a success, creating about $60m to $80m of annual supply chain synergies.
Extracted in full from: https://www.theaustralian.com.au/business/dataroom/viva-energy-in-the-spotlight-over-vitol-ties-and-exxonmobil-nz-interest/news-story/179e996bee332875d7ae09675afa35c5
