Saudi Aramco Sets Financing Plans for Industrial Push

The world’s biggest energy company Saudi Arabian Aramco outlined on Wednesday financing plans that will fund its expansion into new areas under a sweeping economic reform plan released by Riyadh this week.

Furthermore, and according to sources familiar with the matter, Aramco will complete the expansion of its Shaybah oilfield by the end of May, allowing the biggest crude exporter in the world to maintain its total production capacity. Shaybah’s expansion will help the Saudi company, as the state producer is known, keep its capacity at 12 million barrels a day.

The reforms also foresee Aramco transforming itself from an oil and gas firm into a “global industrial conglomerate” involved in many sectors and services, benefitting from its vast financial resources to create jobs and help diversify the Saudi economy, ridding it of oil reliance.

The plans suggest Saudi Arabia’s state oil company, which Deputy Crown Prince Mohammed bin Salman estimated this week was worth over $2 trillion, aims to move rapidly into its new role.

“We will continue to build on our accelerated transformation and serve as a pillar, role model and champion of transformation in the kingdom,” Aramco’s official magazine, Arabian Sun, quoted chief executive Amin Nasser as saying.

Aramco’s board, which convened in Tokyo last week, agreed to provide interim financing for a planned shipyard at the town of Ras al-Khair on Saudi Arabia’s east coast, the magazine said without giving details.

In January, Aramco signed a memorandum of understanding to establish the shipbuilding and repair complex with National Shipping Co of Saudi Arabia (Bahri), a subsidiary of Lamprell Plc, a United Arab Emirates-based engineering firm, and South Korea’s Hyundai Heavy Industries.

Despite the company keeping the size of the project undisclosed, an oil industry source aware of the plan said it was expected to cost several billion dollars.

Aramco’s board also decided to set up joint ventures for onshore and offshore drilling rig services, the magazine said without giving details of those ventures.

Traditionally, Aramco has relied heavily on outside contractors to provide it with such services, but it is seeking to take hold of those businesses to help create jobs for Saudis, stimulate local demand and control costs.

The board approved an additional equity contribution for its Sadara petrochemical joint venture with U.S. firm Dow Chemical, Arabian Sun said, without revealing the size of the capital injection.

The magazine further added that Aramco also approved the creation of a program to issue Islamic bonds (sukuk). It gave no details, but since the capacity of the Saudi banking sector to lend is being squeezed by low oil prices, bankers think Aramco might sell foreign currency debt in the international market.

The reform plan is expected to go together with a big increase in foreign borrowing by the Saudi government and companies as Riyadh juggles the need to pursue development projects with a large state budget deficit caused by cheap oil.

EXECUTIVES

Under the reform plan, a stake of less than 5 percent of Aramco is to be offered to the public, as well as stakes in some subsidiaries. An initial public offering of Aramco, which will be a complex process given the company’s size and strategic importance, may occur in 2017 or 2018.

Aramco officials quoted in the magazine on Wednesday did not comment on the IPO beyond saying they welcomed it as a way to take part in the reform program.

Also announced on Wednesday were several appointments to senior posts in Aramco, including four people to the level of vice president.

Nabeel al-Mansour was appointed general counsel, the first Saudi to hold that post. One goal of the reform program is to move local citizens into jobs, both senior and junior, for which Saudi Arabia has usually relied on foreigners.

Comments by top Aramco officials over the past few months point toward the company seeing itself not just as a big investor, but as an agent for moving the economy beyond dependence on oil.

For example the firm, which has about 60,000 employees, plans to use its extensive educational and vocational training programs to help create the human capital needed for the transformation.

“Saudi Aramco will be a bridge for a transition away from itself,” the company’s chairman Khalid al-Falih told a business conference in January.

Saudi Aramco Sets Financing Plans for Industrial Push