Oil giant Aramco to acquire additional 22.5% stake in Petro Rabigh

Saudi state oil giant Aramco said on Wednesday that it has agreed to acquire an additional 22.5 per cent stake in Petro Rabigh, its petrochemical joint venture with Japan’s Sumitomo Chemical, for $702m (SAR2.63bn).

Aramco and Sumitomo each own 37.5 per cent shareholding in Petro Rabigh, a petrochemicals company that was listed on the Saudi Exchange in 2008.

Upon the completion of the deal, which is priced at SAR7 per share, the state energy giant will become the largest shareholder in Petro Rabigh with a 60 per cent stake, while Sumitomo Chemical will retain 15 per cent.

“By increasing our shareholding, we expect to achieve even closer integration with Petro Rabigh and facilitate its turnaround strategy,” said Hussain A. Al Qahtani, Aramco senior vice president of Fuels.

Aramco and Sumitomo will each fund Petro Rabigh with $702 m and waive loans worth a total of $1.5bn.

The transaction, which is subject to regulatory approvals, is part of a package of financial measures intended to strengthen Petro Rabigh’s financial position, Aramco said in a statement.

Petro Rabigh had accumulated losses totalling $2.36bn (SAR8.87bn) by the end of June, which was equivalent to over 53 per cent of its share capital, it said on Wednesday.

The Aramco-Sumitomo deal explores a remedial plan as Petro Rabigh looks to abide by Saudi Arabian law, which states that if a joint-stock company’s losses are half its issued capital, it must announce them and make recommendations within 60 days.

The deal aligns with the Saudi energy giant’s downstream expansion and Sumitomo’s move away from commodity chemicals toward specialty chemicals.

“Aramco continues to identify opportunities to strengthen its downstream value chain, secure placement of its upstream crude oil with affiliated refineries, and convert more of its hydrocarbons into high-value materials,” added Al Qahtani.

Aramco downstream investments

Over the years, Aramco has been ramping up its presence in China’s refining and petrochemicals market. Its chief executive, Amin Nasser, said earlier in August that he expects oil demand growth of between 1.6 and 2 million barrels per day (bpd) in the second half of the year.

The state-owned oil giant said in April that it was in talks to acquire a 10 per cent stake in Hengli Petrochemical, a deal that would significantly expand its refining presence in China.

Hengli Petrochemical, owned by Hengli Group, owns and operates a 400,000 bpd refinery and integrated chemicals complex in China’s Liaoning Province.

Earlier this year, Aramco and China’s oil refining giant Rongsheng Petrochemical (Rongsheng) said they were in talks to buy a 50 per cent stake in each other’s refineries in China and Saudi Arabia.

Aramco posted a second-quarter net income of $29.03bn (SAR109.01bn) in the three months to June 30, beating a company-provided median estimate from 15 analysts of $27.7bn. It declared dividends of $31.1bn for the second quarter, including $10.8bn in performance-linked payouts.

Read: Saudi Aramco Q2 profit drops 3.4% on lower volumes, refining margins