Saudi Aramco acquires 40% stake in Gas & Oil Pakistan Ltd. (GO) but why?

ISLAMABAD: In a groundbreaking move, Saudi Aramco, one of the world’s leading integrated energy and chemicals companies, is set to enter Pakistan’s fuel retail market after it signed agreements to acquire a 40 % stake in Gas & Oil Pakistan Ltd. (GO) on Tuesday.

Earlier this quarter, it was reported that Saudi Aramco is looking to buy the assets of Shell Pakistan. The deal did not go through and Saudi energy company Wafi Energy eventually bought off Shell’s assets in Pakistan. When Aramco passed on Shell, no one would have thought that they would enter the Pakistani market much sooner through a completely different route.

Saudi Aramco’s acquisition of GO, a diversified downstream fuels, lubricants, and convenience store operator, represents the company’s maiden venture into the Pakistani fuel retail sector.

What is the deal?

The strategic investment aims to strengthen Aramco’s downstream value chain internationally and provides GO with a significant boost in the competitive market.

GO is recognized as one of the largest retail and storage companies in Pakistan, offering a diversified portfolio of services.

The deal is contingent upon customary conditions, including regulatory approvals, and aligns with Aramco’s strategy to expand its downstream operations globally.

This move follows Aramco’s acquisition of Valvoline Inc.’s global products business in February 2023, and the planned acquisition of GO is expected to secure additional outlets for Aramco’s refined products and open new market opportunities for Valvoline-branded lubricants.

Mohammed Y. Al Qahtani, Aramco Downstream President, expressed optimism about the acquisition, stating, “Our second planned retail acquisition this year aligns with Aramco’s downstream expansion strategy, with a clear path ahead for growing an integrated refining, marketing, lubricants, trading and chemicals portfolio worldwide. GO has a significant storage capacity, high-quality assets and growth potential, which will help launch the Aramco brand in Pakistan.”

This marks Aramco’s second planned retail acquisition in 2023, aligning with the company’s downstream expansion strategy focused on refining, marketing, lubricants, trading, and chemicals.

The strategic move by Aramco is expected to pave the way for additional investments in Pakistan’s downstream oil sector, emphasising the company’s commitment to international growth and impact. Experts are hopeful that this injection of FDI will also help Pakistan with its ongoing foreign reserves and balance of payments crises.

Saudi Aramco’s foray into the Pakistani downstream oil sector is also expected to bring about transformative changes, introducing global expertise and innovative solutions to the market. The deal underscores the strategic importance of Pakistan in Aramco’s international growth trajectory.

A little about GO:

One thing that works largely, in GO’s favour is its spread. With more than 1200 retail outlets, GO is the largest retail outlet operator in Pakistan in the private sector. Its oil storage depots and terminals across the country can hold approximately 200,000 MTs of fuel. A 2nd upcountry storage network and a fleet of 800 tank trucks equipped with satellite tracking systems, ensure round-the-clock deliveries to its retail outlets.

In 2020, GO also became the first OMC in Pakistan to introduce Electric Vehicle Chargers at its outlets.

It has the largest network of Company Owned Company Operated (COCO) retail outlets in Pakistan and has a strong network of fueling stations on the M4 and M5 motorways.

It is relevant to note that GO’s retail market share in Pakistan has exhibited a consistent presence, standing at 7.0% in FY 2023, 8.9% in FY 2022, 9.3% in FY 2021, 9.1pc in FY 2020, 7.9percent in Financial Year (FY) 2019. Besides, GO is not a listed company.

Why GO?

A question that has confounded many is that why did Aramco opt for GO, instead of other petroleum companies. Apart from a glaring Rs 45 billion in loans on its balance sheet, GO has found it difficult to get banks to open credit lines for it. So the question is, why would Saudi Aramco, a company that has one of the largest market shares in the world, buy a stake in a company that is losing market credibility and has high amounts of liabilities?

Sources familiar with the deal indicate that Aramco plans to supply fuel to GO, introduce its Valvoline range of lubricants in Pakistan, and launch Aramco-branded retail outlets, enhancing GO’s standing in the market.

According to senior energy analysts GO’s supply exclusivity and utilisation of storage capacity are reasons enough for Aramco to look at it. Any further conclusions can only be drawn after the terms of the agreement are made public.

It is also important to note that despite being a company with a market cap greater than $2 trillion, it still has lesser retail presence than some of its global competitors. That is one of the reasons why Aramco is practising a downward expansion strategy.

Downstream expansion strategy involves a company extending its operations toward end consumers in the supply chain. It includes activities like retailing, marketing, and customer engagement, adding value to products/services. This would enhance Aramco’s brand visibility, allowing for direct market influence increasing the company’s profits in the longer run.

A native brand will not only help aramco establish brand recognition, but also provide endless opportunities in an emerging market like that of Pakistan. It is also important to note that the terms of the deal, along with the amount for which Aramco bought 40% of GO is undisclosed as of yet.

GO’s History 

In 1967, Chaudhry Riaz Ahmed entered into the fuel retail business with sales in remote communities of Southern Punjab. He continued to grow the business with acquisition of various retail outlets. 

During 1979 to 2011, Khalid Riaz, son of Chaudhry Riaz Ahmed, joined the fuel business at an early age, further expanding the business and becoming one of the largest dealers of leading oil marketing companies in the country. Growing the family’s transport business, Riaz became one of the largest oil transporters in the country with approximately 5% of the entire volume of Pakistan’s fuel moved by Sitara Petroleum Service (Private) Limited’s fleet. 

In 2012, Khalid Riaz sought help from Tariq Kirmani, former Managing Director of Pakistan State Oil, to establish an Oil Marketing Company and obtained the licence in the name of Gas & Oil Pakistan Limited (GO). The company went on to construct its Sahiwal Depot to enable commercial operations on its commissioning.

The company under the leadership of Tariq Kirmani and Khalid Riaz established itself as a force to reckon with, commissioning storage depots and retail outlets every year from 2015 onwards. The company made a name for itself as a reliable supplier of quality fuels and quickly became a company known for meeting its commitments.

GO was awarded a Permanent License by Oil & Gas Regulatory Authority (OGRA) in 2019 making it the first company in more than a decade to achieve this accolade. In 2018, the company entered into a strategic partnership with one of the largest independent energy traders in the world, making it a shareholder and a major supplier to Pakistan. 

Following a period of economic upheaval following COVID-19 and headwinds facing the country and the industry, in 2023, GO bought its equity back from the international trader with a view to partnering with a company with leadership position in the downstream industry with a long term view. The company expects to deliver on this plan in early 2024 to embark on the next phase of its growth.