Saudi Aramco to Buy Stake in Petronas' RAPID Refinery

Posted by Joseph Keefe

Aramco to take 50 pct stake in some RAPID ops; Saudis
to use Malaysia as platform for SEAsia investment.

Saudi oil giant Aramco will buy an equity stake in Malaysian firm
Petronas' major refining and petrochemical project, the companies
said on Tuesday, pumping in $7 billion in its biggest downstream
investment outside the kingdom.

The deal will boost Aramco's downstream business ahead of a
planned initial public offering next year and also bolsters
Malaysia's state-controlled Petroliam Nasional Bhd - known as
Petronas - after it cut spending because of the slump in oil
prices.

In a joint statement, the firms said Aramco will take a 50
percent stake in select ventures and assets in the Refinery and
Petrochemical Integrated Development (RAPID) project developed by
Petronas.

The deal signing was witnessed by Malaysian Prime Minister Najib
Razak and Saudi King Salman, currently on a state visit to
Malaysia - the first in over a decade.

"Malaysia offers tremendous growth opportunities and today's
agreement further strengthens Saudi Aramco's position as the
leading supplier of petroleum feedstock to Malaysia and Southeast
Asia," Aramco Chief Executive Officer Amin Nasser said.

"With RAPID's strategic location in a prolific hub, it would also
serve to enhance energy security in the Asia-Pacific region."

Petronas' Chief Executive Officer Wan Zulkiflee Wan Ariffin told
reporters Aramco will take a 50 percent stake in RAPID's refinery
and cracker project.

Aramco will supply up to 70 percent of the crude feedstock
requirement of the refinery, with natural gas, power and other
utilities to be supplied by Petronas.

"To my knowledge, it is the largest single downstream investment
made by Saudi Aramco outside the kingdom," said Sadad
al-Husseini, a former Aramco executive.

RAPID, part of the Pengerang Integrated Complex (PIC) in the
southern Malaysian state of Johor, will contain a 300,000
barrel-per-day oil refinery and a petrochemical complex with a
production capacity of 7.7 million metric tonnes. The total
development cost has been estimated at $27 billion.

Like neighbouring Singapore, Malaysia's Pengerang peninsula sits
between the Malacca Strait and the South China Sea, through which
almost all the Middle East oil and gas bound for northern Asia's
industrial powerhouses of China, Japan and South Korea is
shipped.

Petronas on Tuesday said almost 60 percent of the PIC development
is complete, and that it is on track for refinery start-up in
2019.

NEARLY THREE YEARS IN THE MAKING

Petronas CEO Wan Zulkiflee said the idea for a partnership on
RAPID was first mooted in 2014 when he met the then Aramco Chief
Executive Khalid al-Falih, now the Saudi energy minister, in
Geneva.

Sources had told Reuters in January that Aramco had pulled back
from a planned partnership with Petronas on RAPID over concerns
about returns from the project.

But the deal was back on within a month in time for King Salman's
visit to Malaysia.

"We started negotiations three years ago. There was not any plans
to break out of the agreement... From the beginning we came with
the intention to stay," Aramco CEO Nasser said on Tuesday.

The Aramco investment comes as a relief for Petronas which has
cut expenditures in the past year as oil prices have slumped from
over $100 a barrel in 2014. In early 2016, Petronas said it would
cut spending by up to 50 billion ringgit ($11.27 billion) over
the next four years. Dividends to the government coffers have
also been slashed.

Saudi Energy Minister Falih echoed Nasser's comments, saying
Saudi Arabia would use the Malaysian investment as a platform to
other investments in southeast Asia.

"We will encourage the private sector of Saudi Arabia to come and
look at Malaysia as an investment for its own market and also to
address the needs for the broader region," he said.

Reporting by Emily Chow

Feb 28, 2017

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