Saudi Aramco would sell downstream ops, not upstream -sources

China Petrochemical Development

10/01/2016 15:13

* Some managers told shares in downstream JVs may be sold 
    * Upstream sale not being actively considered - sources 
    * Foreign joint venture partners not yet informed 
    * Reorganising Aramco could delay a sale many months 
    * Stock market in poor shape to absorb big share sale 
 
    By Reem Shamseddine, Celine Aswad and Rania El Gamal 
    KHOBAR, Saudi Arabia/DUBAI, Jan 10 (Reuters) - Saudi Arabia 
is considering selling shares in refining ventures with foreign 
oil firms but would not offer a stake in the crude oil 
exploration and production operations of state oil giant Saudi 
Aramco, sources familiar with official thinking said. 
    Some Aramco managers have been informed that the company is 
looking at listing shares in "joint downstream subsidiaries" at 
home and abroad, the sources said. 
    One option is to create a holding company that would group 
together Aramco's stakes in the downstream subsidiaries, one 
source said. Shares in the parent firm would not be offered, he 
added. 
    "The holding company is the one which could be listed, not 
Aramco itself," he said, declining to be named because of 
political sensitivities. 
    The global energy market has been awash with speculation 
since Deputy Crown Prince Mohammed bin Salman appeared to 
indicate in an interview with The Economist magazine last week 
that Saudi Arabia might sell shares in Aramco, as part of a 
privatisation drive to raise money in an era of cheap oil. 
 ID:nL8N14R3EO  
    On Friday Aramco, the world's largest oil company, issued a 
brief statement saying it was considering options including the 
stock market listing "of an appropriate percentage of the 
company's shares and/or the listing of a bundle (of) its 
downstream subsidiaries".  ID:nL8N14S1UO   
    Aramco has crude reserves estimated at about 265 billion 
barrels, over 15 percent of all global oil deposits, so it could 
become the first listed company valued at $1 trillion or more if 
it went public, analysts have estimated. 
    But several sources close to Aramco said its massive size, 
and the confidentiality surrounding it as the main instrument of 
the kingdom's oil policy, meant the sale of a stake in the 
parent firm was not being actively considered. 
    "The government will never give up its crown jewel," said a 
senior banker in Riyadh. 
    Instead, authorities are looking at accelerating plans that 
have been in the works for many years to sell shares in part of 
Aramco's vast refining and petrochemicals empire, which by 
itself is estimated to be worth tens of billions of dollars. 
    A precedent for the sale already exists: PetroRabigh 
 2380.SE , a refining and petrochemicals venture in which Aramco 
and Japan's Sumitomo Chemical  4005.T  each own 37.5 percent. It 
held an initial public offer on the Riyadh bourse in 2008. 
    "The higher priority is to IPO downstream - it would be 
low-hanging fruit," said Essam al-Zamel, a prominent economic 
columnist in Saudi Arabia. 
    Aramco could not be reached for comment on Sunday, a day off 
for the company's employees.      
     
    VENTURES 
    It is not clear which ventures might be involved in a sale. 
But the range of candidates is wide; Aramco and subsidiaries own 
or have an equity interest in over 5 million barrels per day of 
refining capacity. 
    Its operations include a joint refinery with Royal Dutch 
Shell  RDSa.L  in Jubail known as SASREF; a venture with Exxon 
Mobil  XOM.N  in Yanbu known as SAMREF; and its YASREF refinery, 
which is a venture with China Petrochemical Corp (Sinopec). 
YASREF has already said it is looking at listing its shares 
eventually on the Saudi stock market.  ID:nL8N0ZA2HU  
    Subsidiaries of Aramco abroad include S-Oil in Korea; a 
refinery in Fujian, China owned jointly with Exxon and Sinopec; 
and Motiva in the United States, which is a venture with Shell. 
    Prince Mohammed told The Economist that he expected a 
decision on the Aramco privatisation to be made "over the next 
few months". But an actual sale of shares would probably take 
much longer to happen as it would involve reorganising Aramco. 
    "This is still at a very preliminary stage. They have to do 
a study first and submit the results to the board members, and 
then decide whether to go ahead with it or not," said the first 
source. 
    Selling shares in joint ventures could prove problematic if 
foreign partners did not agree. An industry source said Aramco's 
foreign partners had not yet been consulted on the idea; at 
present, they are "like a deaf man at a wedding", he said. 
    At the right price, foreign investors might be keen on 
grabbing a chunk of Saudi Arabia's refining operations, which 
have been growing even as global oil prices have plunged in the 
last 18 months, squeezing upstream producers. 
    But Saudi political sensitivities may influence any sale. 
Traditionally, shares in state firms have been sold at 
discounted prices exclusively to Saudi investors as a way of 
sharing the kingdom's oil wealth. 
    So any listing of shares would probably have to occur on the 
Saudi bourse, and though the market opened to direct foreign 
investment last year, participation in an initial public offer 
might well be limited to local investors; foreigners would have 
to buy the shares in the secondary market. 
    The Saudi bourse, capitalised at only $379 billion, has been 
hit hard by the tumble of oil prices - it is trading at 
four-year lows - so it is in poor shape to absorb a big new 
supply of equity. Initially, any sale of Aramco assets might 
therefore be limited to several billion dollars, bankers say. 
    Nevertheless, the government appears determined to proceed 
with a sale - not merely to raise money, but as part of a drive 
to diversify the economy beyond crude oil production and have 
the private sector play a bigger role, analysts said. 
    "This is part of the reformist tidal wave characterising 
Saudi Arabia...It's part and parcel of Mohammed bin Salman's 
drive to alter the structure of the economy," said John 
Sfakianakis, a Riyadh-based economist. 
 
 (Editing by Andrew Torchia and Philippa Fletcher) 
 ((rania.elgamal@thomsonreuters.com; +971 562 160 434; Reuters 
Messaging: rania.elgamal.reuters.com@reuters.net)) 
 
Keywords: SAUDI ARAMCO/IPO