Valuable commercial property portfolio driving price of fuel business, writes Arthur Beesley.

The race for Statoil's Irish operation is into the last furlong, with final bids said to put a valuation on the business of significantly more than €200 million.

Four months into the bargaining, three bidders are still in the running: Topaz, the group that bought Shell's Irish business last year, Galway firm Sweeney Oil and the privately-held Canadian group Irving Oil.

None of these are household names, but their bids have seen off groups as mighty as the supermarket operator Tesco, which was in league with Tedcastle, and the industrial holding group DCC, which made a proposal with the Cork-based group Musgrave-SuperValu-Centra.

With final discussions under the stewardship of Merrill Lynch now underway, close observers believe a deal could be brokered within the next fortnight. So who are the bidders?

Topaz is backed by the Dublin-based finance house Ion Equity and a syndicate of private clients including Anglo Irish Bank and Denis O'Brien. It is believed that O'Brien will not be providing fresh equity to Topaz if its bid is successful. The group has access to big money. It was an unsuccessful bidder earlier this year for Shell's fuel station network in Britain, which had a price tag of in the region of €620 million.

Sweeney Oil is controlled by Galway-based businessman John Sweeney. Advised by IBI Corporate Finance, the group was an unsuccessful bidder for Shell's Irish business last year. It is a defendant in ongoing criminal proceedings following a Competition Authority investigation into an alleged cartel in the home heating oil business in Galway city and county.

Irving Oil is something of an unknown, although the group operates Canada's largest oil refinery. It accounted for 64 per cent of Canada's total petroleum exports to the US.

"We are always looking for new ways to grow our business and serve new customers. We do not comment on potential acquisitions or divestitures," said a spokeswoman.

For Statoil, a sale would mark the end of a 15-year foray in the Irish fuel business as it prepares to build a bigger presence in eastern Europe. Controlled by the Norwegian state, the group has already sold its interest in a power station joint venture with the ESB in Dublin Bay. However, it plans to retain its 36 per cent stake in the Corrib gas project.

The group's fuel business is considered attractive for several reasons. It is estimated that it commands 18-22 per cent of the market in terms of motor fuel salesand it owns 69 of its fuel station outlets.

As the owners of commercial real estate in all sectors are taking the benefit of the massive uplift in land valuations generally, the scale of the Statoil property portfolio is driving the price of the business. The same factor was at work last year when Topaz spent some €200 million on Shell's motor fuel business. Topaz has already started to sell off some of its more attractive assets.

Statoil has fuel supply contracts with 167 independently-owned outlets. This helps to make it the biggest market participant by fuel sales, ahead of big US-owned groups such as Esso and Texaco and the Irish-owned Maxol.

In addition, Statoil is selling fuel terminals in Dublin, Cork and Galway and interests in a number of small heating oil companies. For Topaz or Sweeney, a successful bid would provide instant scale in a market in which size is all. For Irving, success would provide an entry into the booming Irish market and, perhaps, a bridgehead into Britain and the European mainland.

Whatever the reasons for Statoil's exit, it is clear that the Irish motor fuel market is in a period of transition. Figures from the Irish Petroleum Industry Association show that the number of fuel outlets has declined significantly in the last decade. There were 1,438 outlets in 2004, the latest year for which figures are available, down from 2,457 in 1995.

Driving the change in the first instance was the move out of towns and village centres due to health and safety legislation. The national roads programme is another factor, with bypasses around regional towns and new motorways taking traffic away from established outlets.

But for all the dreary talk about low profit margins in the business, there is money to be made.

With only eight fuel outlets, Tesco claims some 5 per cent of the market. While the scale of the chain's supermarket business means it can afford to take a lower margin for fuel, Tesco is not known for running businesses at a loss. The group's rivals believe that its individual fuel outlets sell 10-15 million litres of fuel per annum, against an industry average of less than 2 million per annum.

Tesco has deeper pockets than most, so the fact that it was outgunned in the race for Statoil suggests that the business will fetch a very high price. Should Topaz prevail, is not beyond the bounds of possibility that some of the Statoil outlets could come Tesco's way if the Competition Authority imposes conditions on a deal.

For now at least, that's not the main event.