Page 4 - MEOG Week 41

MEOG COMMENTARY MEOG

Aramco to stick

with oil as it plans

divestments

Saudi Aramco has said it intends to increase oil capacity and continue its interest in LNG
exports, while admitting that it will seek to market assets to optimise its portfolio

SAUDI ARABIA SAUDI Aramco, the world’s largest producer of Given the sensitivity of the company’s conces-
oil, remains committed to facilitating increased sion covering sole rights to develop the King-
crude output despite the challenges the company dom’s hydrocarbon resources, we can be all but
WHAT: and the industry as a whole have faced this year. certain that such agreements will not cover the
Aramco intends to double Sources were quoted by Reuters as saying that upstream.
down on oil and gas, the company intends to fulfil its threat from early Meanwhile, an agreement was reported to be
while potentially raising this year to raise oil production capacity from the in place earlier this year to sell a stake in the com-
capital by selling stakes current 12mn barrels per day to 13mn bpd. pany’s pipeline business to a group of local banks
in non-core assets. The industry had long been fascinated with for up to $10bn. However, appetite for this deal is
Aramco’s, and thus Saudi Arabia’s, spare capacity. understood to have diminished somewhat amid
WHY: While the company pumped at levels of around concern from the MoE and further due diligence
The company has faced 9.5-10mn bpd, much was made of the purported is being carried out.
a tumultuous year and 2.5mn bpd of extra capacity that could be uti- This leaves the downstream. While the scale
could monetise assets lised if required. of Saudi Arabia’s downstream infrastructure
to ensure it can meet its In Q1 this year, Aramco put its money where is impressive, it remains a cost centre. Aramco
dividend obligations. its mouth was when called upon by the Minis- wholly owns 1.235mn bpd of refining capacity,
try of Energy (MoE), which dictates crude pro- while its domestic joint ventures have a com-
WHAT NEXT: duction levels, to ramp up output from 8.9mn bined slate of 1.67mn bpd, though losses were
The sale of domestic bpd. This resulted in a single-day oil production mounting even before the coronavirus (COVID-
assets is being record being set in April of 12.1mn bpd. How- 19) pandemic. PetroRabigh, for example, which
mooted, while talks are ever, Middle East Oil & Gas (MEOG) under- Aramco owns in collaboration with Japan’s
understood to remain stands from Aramco sources that this included Sumitomo Chemical, booked a loss of $384mn
ongoing for the sale of an producing ‘over capacity’ at several assets, during Q2 and the partners last week agreed to
Asian refinery. including Manifa, Safaniyah and Shaybah. provide the facility with a $2bn loan.
In addition, the sources said that the 12.1mn Aramco’s wholly owned domestic refiner-
bpd figure also included flows from storage facil- ies are Ras Tanura, Riyadh, SASREF in Jubail,
ities; meanwhile, a single-day record was also set Yanbu’ and the long-awaited Jazan. It is not yet
during the quarter for crude loading at around known whether a stake in any of these might be
15.5mn barrels. made available, but attracting the interest of for-
eign investors is likely to require increased flows
Divestments to export markets to profit from higher prices.
Meanwhile, in an interview with Energy Intel- Meanwhile, MEOG understands that talks
ligence last week, Aramco CEO Amin Nasser remain ongoing with potential investors for the
said that he saw “greater opportunities for us to sale of a JV refinery in Asia, with details scant
squeeze more value from our existing portfolio given the confidentiality of discussions.
and further optimise it”.
He added: “We’re going to do it right and will Why now?
make sure what’s executed … is in line with our One of the key promises ahead of the company’s
long-term view – the strategy of retaining our initial public offering (IPO) in December last
core businesses in-house and what can be opti- year was the $75bn dividend to shareholders –
mised with our partners. This involves a careful $18.75bn per quarter.
review process that will take some time.” With 98.5% of the company remaining under
The company is understood to be considering state control, only $1.125bn is due to leave Saudi
divesting shares in some of its domestic assets. coffers. However, considering Aramco’s new

P4 www. NEWSBASE .com Week 41 14•October•2020