Case study
Case study Quadrant 2
Sell and lease back ESG-heavy assets
Shell and BP’s decision to sell the Sapref refinery in South Africa
The problem
South Africa’s energy sector has long been shaped by a heavy reliance on crude oil processing and fossil fuels, a legacy that poses significant challenges in the context of the global energy transition. The Sapref refinery, located in Durban, has been a critical asset in this landscape. Commissioned in 1963 and with a capacity to process 180,000 barrels of oil per day, Sapref is the largest crude oil processing facility in South Africa. For decades, it served as a cornerstone of the country’s fuel supply chain, supporting industrial growth and ensuring energy security in the region.
Jointly owned by Shell Downstream South Africa and BP Southern Africa through a 50:50 partnership, Sapref had long been considered a reliable, cash-generating asset to the two oil majors. However, the refinery began facing significant pressures in the early 2000s. The push toward decarbonization, increasing regulatory scrutiny, and South Africa’s commitments to reduce carbon emissions under the Paris Agreement placed Sapref’s emissions-intensive operations under growing criticism. At the same time, operational challenges at the refinery intensified, necessitating significant upgrades to meet evolving safety and environmental standards, with costs projected to reach hundreds of millions of dollars. Volatile oil prices, geopolitical instability, and rising competition from cleaner energy alternatives further clouded the outlook for refining profitability.
Complicating matters further was the reputational risk associated with continuing to operate such facilities. Stakeholders – including environmental activists, investors, and regulators – were demanding stronger commitments to sustainability. In light of these challenges, Shell and BP needed to reassess their investments and activities in the region, figuring out a way to balance operational continuity with global sustainability goals.
The strategy
Faced with operational, financial, and reputational challenges, Shell and BP decided to pursue a strategic divestment to balance their immediate business needs with their long-term sustainability goals. In 2024, the two companies sold their stakes in the refinery to the Central Energy Fund (CEF), a South African state-owned entity. This decision effectively transferred direct ownership and associated Scope 1 emissions responsibility to CEF, enabling Shell and BP to significantly reduce their carbon footprint in the region. However, rather than exiting the market entirely, both companies maintained operational access to the refinery through operational agreements, through which they were able to secure ongoing access to refined products from Sapref, allowing them to meet regional fuel demand and maintain a foothold in the South African market. This approach offered a way to reduce the companies’ emissions responsibility without disrupting their supply chains.
This move was not an isolated decision but part of a broader shift among multinational oil companies to divest from carbon-intensive assets while maintaining operational involvement. Globally, Shell and BP have pursued similar strategies, selling refineries and fuel stations – often to local or state-backed entities – as part of efforts to streamline their portfolios. These transactions reflect a deliberate shift to reduce exposure to high-emission facilities, mitigate regulatory and reputational risks, and unlock capital for reinvestment in clean energy. Proceeds from such sales have been redirected toward renewable energy projects and emerging technologies, including hydrogen production, carbon capture and storage (CCS), and biofuels. For instance, BP’s global strategy includes a commitment to become a net-zero company by 2050, with a significant portion of its capital expenditures allocated to renewable energy. Similarly, Shell has set ambitious decarbonization targets and invested heavily in solar, wind, and electric vehicle charging networks.
The results
Broadening the lens of sell and lease back strategies
The concept of a sell and lease back strategy is not exclusive to sustainability initiatives and has been widely used across industries to achieve various financial and operational objectives. For example, NovaWatt’s sell and lease back of its two cogeneration plants shows how emissions-intensive operations can free up financial resources while maintaining operational control. Similarly, Iberdola’s announcement in 2023 to sell and lease back land on which some of its wind and solar farms were located, underscores how the model can serve as a financial tool to support sustainability efforts, regardless of the carbon intensity of the underlying assets. Together, these examples showcase the flexibility and transformative potential of sell and lease back strategies.
1. NovaWatt – Cogeneration plants: In 2025 NovaWatt, an independent electricity producer, sold two cogeneration plants under a €4.6 million sell and lease back agreement. While cogeneration plants are generally more energy-efficient than traditional power generation, they still emit CO2, particularly when fueled by natural gas. By leasing back the assets, NovaWatt retained operational control while freeing up capital to expand its production capacity. The example highlights how companies can manage high-emission assets while unlocking financial resources for growth.
2. Iberdola – Land for renewable projects: In a contrasting application of sell and lease back, Iberdola in 2023 sold a 49% stake in a holding company owning land for wind and solar farms in Spain. Unlike cases involving high-carbon assets, this approach focused on renewable infrastructure, with the aim of unlocking capital to expand sustainability investments. By leasing back the land, Iberdola ensured continued operations while demonstrating how sell and lease back strategies can support growth in low-carbon sectors. This example underscores the adaptability of the model, demonstrating its relevance not just for mitigating environmental liabilities, but also for scaling renewable energy initiatives.
The sale of the Sapref refinery by Shell and BP can be seen as an example of how companies can strategically reduce their direct sustainability responsibilities while retaining essential operational access. By transferring ownership to CEF, both companies succeeded in aligning their actions with global decarbonization efforts. The transaction not only shifted Scope 1 emissions responsibility but also allowed Shell and BP to maintain access to the asset through operational agreements.
Beyond reducing environmental liabilities, this strategy freed up capital that Shell and BP have redirected toward advancing their sustainability agendas. BP, for example, has accelerated investments in renewable energy projects, hydrogen production, and CCS technologies as part of its ambition to achieve net-zero emissions by 2050. Similarly, Shell has allocated proceeds to expanding its solar and wind energy portfolios, developing electric vehicle infrastructure, and advancing biofuel research. Thus, these initiatives highlight how strategic divestments can effectively channel capital into sustainable investments, accelerating progress toward decarbonization goals. Lastly, the Sapref case serves as a blueprint for carbon-intensive industries, demonstrating how to offload environmental liabilities while retaining essential supply chain access.
Conclusion
Sell and lease back strategies offer a pragmatic and flexible solution for companies navigating the dual challenges of maintaining operational continuity and reducing emissions. By divesting high-carbon assets while retaining operational access, as seen in the Sapref case, Shell and BP effectively transferred emissions responsibilities to new ownership and reinvested proceeds into renewable energy projects, hydrogen, and carbon capture technologies. Beyond carbon-heavy industries, examples like NovaWatt and Iberdrola demonstrate how this approach can support diverse objectives, from financing growth in renewable energy to enhancing financial efficiency in low-carbon sectors.
One of the key advantages of the sell and lease back strategy is its relatively low transformation complexity. Unlike full divestitures or spin-offs, this approach allows companies to avoid large-scale restructuring, the creation of new management teams, or navigating complex regulatory approvals. However, the strategy is not without risks. If not carefully executed, it can attract accusations of greenwashing, especially if stakeholders perceive it as an attempt to mask environmental impacts rather than actively mitigating them, underscoring the importance of transparent communication and clear sustainability goals. Thus, the sell and lease back approach, when effectively managed, can serve as a strong tool for advancing decarbonization efforts with minimal disruption.
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