Saudi Aramco, the world’s top crude exporter, signed a $12.4 billion deal on Friday with a group of investors led by EIG Global Energy Partners (EIG) that gives the consortium a 49 per cent stake in a newly formed oil pipeline venture.
The agreement, which aims to monetise the assets of the state-oil giant, is its largest since the company’s 2019 listing on the Tadawul exchange that raised over $29bn.
A newly formed Aramco subsidiary, Aramco Oil Pipelines Company, will lease usage rights in Aramco’s stabilised crude oil pipelines network, which connect oilfields to the downstream network, for a 25-year period, the company said in a statement. Aramco Oil Pipelines Company will receive a tariff payable by Aramco for the oil that flows through the network, backed by minimum volume commitments.
Aramco will hold a 51 per cent majority stake in the new company, with the remaining 49 per cent stake held by the EIG-led group. Aramco will continue to retain full ownership and operational control of its stabilised crude oil pipeline network. The deal indicates a total equity value of about $25.3bn of Aramco Oil Pipelines, according to a statement from EIG.
Aramco will at all times retain title to and operational control of the pipeline network and will assume all operating and capital expense risk. The transaction will not impose any restrictions on Aramco’s actual crude oil production volumes.
“This landmark transaction defines the way forward for our portfolio optimisation programme. We are capitalising on new opportunities that also align strategically with the kingdom’s recently-launched Shareek programme,” Aramco president and chief executive Amin Nasser, said.
“Aramco’s strong capital structure will be further enhanced with this transaction, which in turn will help maximise returns for our shareholders … moving forward, we will continue to explore opportunities that underpin our strategy of long-term value creation.”
Washington-based EIG’s chief executive Robert Blair Thomas said the deal “aligns perfectly with EIG’s philosophy of investing in high-quality assets with contracted cash flows in critical infrastructure.”
EIG, which invests in energy and energy-related infrastructure around the world, has $22bn in energy-related assets globally.
Aramco did not name the other companies in the EIG-led group. The oil giant’s deal will help Saudi Arabia pump billions of dollars into its economy as it seeks develop various mega projects, build up its tourism sector, nurture local non-oil industries and boost jobs. Non-oil revenue accounted for about half of Saudi Arabia’s total revenue in 2020.
The kingdom’s sovereign wealth fund, the Public Investment Fund, plans to double its assets to $1.07 trillion and invest a minimum of $40bn a year into the domestic economy until 2025 and create 1.8 million jobs. It will contribute $320bn to the kingdom’s non-oil economy. The fund aims to grow assets under management to over $2tn by 2030.
Aramco’s deal follows a similar agreement by Abu Dhabi National Oil Company (Adnoc), which was the largest of its kind last year.
Last June, Adnoc signed an agreement worth $20.7bn with a group of companies that included the world’s leading infrastructure and sovereign wealth funds that will invest in Abu Dhabi’s natural gas pipelines infrastructure.
The consortium will take a 49 per cent stake in Adnoc Gas Pipeline Assets, which has the leasing rights to 38 pipelines for 20 years. The pipelines network spans 982.3 kilometres taking Adnoc’s gas to local customers in the UAE. Adnoc holds the majority stake, with 51 per cent interest.
Aramco’s deal “unlocks value from our assets and strengthen [the company’s] resilience, agility and ability to respond to changing market dynamics,” Abdulaziz Al Gudaimi, Aramco senior vice president of corporate development, said.
No specific timeline was given for the closing of the transaction, but the deal is subject to customary closing conditions, including any required merger control and related approvals, according to the statement. Upon closing, Aramco will receive upfront proceeds of around $12.4bn.
Aramco produced 12.4 million barrels of oil equivalent per day last year, of which crude accounted for 9.2 million bpd. Last month, Mr Nasser said the company plans to undertake “detailed engineering” to raise its overall production capacity to 13 million barrels per day.
Aramco reached a production capacity of 12.1 million bpd in April of last year – its highest level so far – before the Opec+ alliance actioned a historic deal to cut supply in the wake of the Covid-19 pandemic that disrupted global trade and led to the deepest recession in the global economy since the Great Depression.