Exclusive - Saudis, oil
majors discuss gas investments ahead of giant IPO
Send a link to a friend
[April 11, 2017]
By Ron Bousso, Dmitry Zhdannikov and Rania El Gamal
LONDON/DUBAI
(Reuters) - Saudi Arabia and international oil companies have discussed
gas venture opportunities inside the kingdom and abroad as part of the
top crude-exporting country's drive to diversify investments before the
listing of national energy giant Saudi Aramco.
Saudi officials explored investment opportunities with firms including
BP and Chevron to help develop its gas reserves, the world's sixth
largest, at a time of booming energy demand at home, four industry
sources told Reuters.
Aramco has also looked into investing in gas ventures abroad, including
with Italy's Eni, the sources said.
The development revives memories of talks between Aramco and global
majors at the end of the 1990s and early 2000s, known as the Saudi gas
initiative. Most of those talks collapsed as the parties disagreed over
returns on investment.
This time, Aramco is gearing up for a share listing next year, aiming to
get a valuation of up to $2 trillion in what could be the world's
biggest initial public offering (IPO).
Chevron, BP, Aramco and Eni declined to comment on talks.
"We have a long-standing relationship with Saudi Arabia, so it is not
uncommon for us to talk to them. We're always having discussions about
business development. I don't have anything particular to say about
Saudi Arabia," Chevron CEO John Watson told Reuters last week.
BP Chief Executive Bob Dudley, who traveled to Saudi Arabia at the end
of last year, said this year he wouldn't rule out "creative
partnerships" with Aramco but that an outright investment by BP in the
IPO was unlikely.
The kingdom has a long-term goal of increasing the use of gas for
domestic power generation, thus reducing oil burning at home and freeing
up more crude for export.
![](http://archives.lincolndailynews.com/2017/Apr/11/images/ads/current/LPL_small%201.gif)
This could help increase Aramco's valuation as it generates more revenue
from exports than selling oil at lower domestic prices - Saudi Arabia is
the world's fifth-biggest oil consumer despite being only the
20th-biggest economy.
Saudi Energy Minister Khalid al-Falih, who is also Aramco's chairman,
said last year that Aramco was interested in investing in international
upstream ventures, particularly gas, and could invest in importing gas
into the kingdom.
Diversifying gas assets abroad would help Aramco achieve a better
valuation and is attractive for investors, industry sources said. Riyadh
also plans to raise domestic gas prices, a move seen as an incentive for
foreign companies.
NEW GAS STRATEGY
Aramco is preparing to reveal in the next few months a new gas strategy
aimed at developing resources to keep pace with rising domestic demand,
sources familiar with the discussions said.
It comes as part of the kingdom's push to diversify its economy away
from oil, a strategy known as "Vision 2030", amid a global drive to
phase out the most polluting fossil fuels.
[to top of second column] |
![](http://archives.lincolndailynews.com/2017/Apr/11/images/ads/current/graue_preowned_033017.png)
Aramco
wants nearly to double gas production to 23 billion standard cubic feet a day in
the next decade.
"IOCs (international oil companies) are waiting for that (strategy) to make
their decisions," one industry source familiar with the matter said.
Another industry source said Energy Minister Falih had said in private meetings
with Western oil executives that he wanted Aramco to partner with other
companies in upstream projects.
Two Saudi-based industry sources familiar with the discussions said BP's Dudley
had expressed an interest in investing in gas exploration in the Red Sea.
However, the two sides have yet to hold any talks on the project.
![](http://archives.lincolndailynews.com/2017/Apr/11/images/ads/current/humanesociety_sda022411.png)
Aramco controls gas reserves in excess of 8 trillion cubic metres, according to
BP's annual energy review. The Saudi company has said it wants to explore for
gas in the shallow waters of the Red Sea as well as onshore shale gas.
SOUR MEMORIES
Since gradually renationalizing the industry in the 1970s, Saudi Arabia has not
allowed the majors to develop its oil.
The Saudi gas initiative of the 1990s was effectively an effort by the
then-minister for oil, Ali al-Naimi, to thwart attempts by companies such as
Exxon Mobil <XOM.N> to partner with Riyadh in oil developments.
In a
book published last year, Naimi said he was convinced that as part of gas talks
during that decade, oil majors hoped to acquire cheap Saudi reserves of gas
condensate, a high-quality form of crude oil.
The $25 billion gas initiative offered in 1997-98 had some of the world's top
oil companies such as Exxon and Shell expressing interest but struggling to
agree terms.
Riyadh later invited investors in 2003-2004 to find and produce gas in Rub Al
Khail, a desert in the country's southeast.
Companies including Russia's Lukoil <LKOH.MM>, Shell and China's Sinopec formed
ventures with Aramco but have failed to find commercially viable deposits. They
also complained about low domestic gas prices and high extraction costs.
Russia's Lukoil <LKOH.MM> was the most recent foreign company to quit Saudi
Arabia's search for gas.
However, Saudi Arabia last month slashed income tax on energy companies
operating in the kingdom to make energy investments more attractive.
![](http://archives.lincolndailynews.com/2016/Aug/26/images/ads/current/ldn_business_directory_small2_2016.png)
"The terms will be better now," an oil executive said.
(Editing by Dale Hudson)
[© 2017 Thomson Reuters. All rights
reserved.] Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |