Saudi Aramco and India’s Reliance Industries have decided to call off a planned joint refining project worth $15 billion on valuation differences.
According to a Reuters report, citing unnamed sources, the talks between the two companies fell through because they could not agree on how much the business, in which Aramco was to acquire a stake, was worth.
The business in question is Reliance’s oil-to-chemicals division. Now, according to Reuters sources, the Indian conglomerate will sign deals with multiple companies to produce higher-margin specialty chemicals at the facility.
The preliminary agreement for the business was inked in 2019 after a long delay, with Aramco agreeing to take a 20-percent stake in the oil-to-chemicals complex run by Reliance at the Jamnagar refinery, which was at the time valued at $15-16 billion.
For the Saudi state giant, the deal would have guaranteed a long-term client for its crude. For Reliance, it would have guaranteed an equally long-term steady supplier of crude. The agreement included a stipulation for the supply of 500,000 bpd of Saudi crude to the Jamnagar facility—40 percent of the refinery’s capacity—over the long term.
But according to an unnamed source who spoke to Reuters, the valuation of the business has put the negotiators at odds because of the global rush to replace fossil fuels with lower-carbon alternatives. This rush, according to the sources, especially after the COP26 summit, led to a drop in valuations for refining and petrochemical assets in the energy industry. Reliance, however, still insisted that the business was worth $75 billion in total—as much as it was valued at in 2019.
Deal Street Asia separately reported, quoting other unnamed sources, that one reason for the failure of the deal was environmental, social, and governance criteria. The two companies' new emission reduction targets and net-zero ambitions also affected the outcome of the negotiations, the DSA sources also said.
By Irina Slav for Oilprice.com
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