Saudi Arabia's state-owned oil giant Aramco may soon open up a massive upstream asset to foreign investment. It would be a rare move for OPEC's top oil producer and the world's largest crude exporter, which operates all oil and gas upstream assets in the Kingdom under a multi-decade concession agreement. Saudi Aramco is now looking to monetize its assets on the one hand, and raise money for the enormous capital investments needed to develop new assets on the other hand.
Opening up asset developments is one of the ways to raise money, considering that the oil sales Aramco is bringing in for the Kingdom are still being used to reduce the government deficit that had shot up with the oil price crash last year. Aramco's own capital budget is not unlimited either, since the oil giant is paying $75 billion in annual dividends to shareholders, the largest of which is the Kingdom of Saudi Arabia with more than 98 percent.
Unconventional Gas Development Could Include Foreign Investors
So, now Saudi Aramco is reportedly in early-stage talks with potential investors willing to help fund a massive $110 billion project to develop the Jafurah unconventional gas field, Bloomberg reports, citing sources with knowledge of the matter. Aramco has hired an adviser to explore the possibility of raising equity or debt to partially fund the development of the field and is in early talks with potential foreign investors, including commodity traders, according to Bloomberg's sources.
Jafurah is the largest non-associated gas field in Saudi Arabia, says Aramco, which received in February 2020 the regulatory approval by the Kingdom's top officials, including Crown Prince Mohammed bin Salman, to develop the asset. Back then, the company expected the giant gas field to start production in early 2024.
The pandemic delayed development plans of all oil and gas giants, including state-held companies such as Aramco, which revised down its capital budget last year and grew its debt amid low oil prices and the commitment to keep the huge dividends to shareholders flowing.
Now Aramco is getting ready to restart the Jafurah field development with the relaunch of tenders, industry sources told CNBC Arabiya earlier this month.
According to Bloomberg's sources, the development of the giant unconventional gas field could be partially funded by foreign investors if Aramco proceeds with the idea to raise money by opening the upstream asset to external investment.
Diversifying From Oil…Into Gas
Opening up the largest non-associated gas field in Saudi Arabia to foreign investment may have been unthinkable just a few years ago, but now it makes a lot of sense for the Kingdom and its cash cow Aramco, which doesn't have the resources to fund by itself a $110-billion development without running into a lot of (additional) debt.
Aramco has a plan to boost its gas business, which is underdeveloped compared to its crude oil portfolio. Additional gas production would give the Kingdom more feedstock for petrochemicals and, at the same time, reduce the use of crude in power generation, thus freeing up more oil for exports.
Moreover, global gas demand is expected to peak decades after the early 2030s, when some analysts expect oil demand to peak. Saudi Arabia also aims to play a major role in the global hydrogen market, including with the so-called 'blue hydrogen' made from gas plus carbon capture and storage (CCS).
Therefore, monetizing assets-including in the upstream-could be a way to make the most of those assets while Aramco still has 'license to operate'.
Gulf Oil Producers Raise Money From Asset Sales
Earlier this year, Bloomberg reported, quoting sources familiar with the matter, that Aramco was reviewing its upstream business and could decide to sell stakes in some not-so-strategic fields to external investors.
Nearly three decades ago, the world's largest oil company was discussing potential partnerships with international oil companies to develop some of Saudi Arabia's oil and gas reserves, but talks fell through because the potential foreign investors did not like the terms the Kingdom was offering.
Related: China's Futile Attempt To Send Oil Prices Lower
Aramco has already made one major asset sale deal this year-it sold a 49-percent stake in its oil pipeline business to a consortium led by U.S. EIG Global Energy Partners for $12.4 billion.
"We plan to continue to explore opportunities to capitalize on our industry-leading capabilities and attract the right type of investment to Saudi Arabia," Aramco's president and CEO Amin Nasser said at the closing of the deal in June.
The Saudi giant is looking to raise even more-$17 billion-from selling a large minority stake in its gas pipeline business, sources with knowledge of the matter told Reuters last month.
Saudi Aramco is not the only state oil giant in the Middle East to divest minority stakes in assets to raise cash after the oil price collapse last year.
The Abu Dhabi National Oil Company (ADNOC) of the United Arab Emirates (UAE) has already raised billions of U.S. dollars from energy asset deals, including the sale of a 49-percent stake in its gas pipelines for $20.7 billion. This sale in mid-2020 marked the start of asset sales from Gulf oil producers.
ADNOC is now in the process of listing its drilling unit ADNOC Drilling in what could be one of the UAE's largest initial public offerings.
ADNOC Drilling already attracted a major foreign investor-Helmerich & Payne said last week it would make a $100 million cornerstone investment into ADNOC Drilling's IPO as it seeks to grow in the region.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More