Saudi Petrochemical Company Beats Analysts’ Estimates

Once again we’re seeing how size and planning are helping energy companies weather the yearlong drop in oil prices. The latest example is the petrochemical behemoth Saudi Basic Industries Corp. (SABIC), whose profits for the second quarter dropped, but less than expected.

SABIC said July 27 in a statement to the Saudi Stock Exchange that its net profit from April through June fell by 4.5 percent to 6.17 billion riyals, or $1.65 billion from 6.46 billion riyals in the same quarter of 2014, primarily due to the drop in oil prices in the past year.

Despite the decline, the company’s profit still managed to be 25 percent higher than the mean estimate of a profit of 4.95 billion riyals forecast by a panel of analysts assembled by Bloomberg. A similar group surveyed by Reuters expected a profit of 4.96 billion riyals.

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In an interview with Reuters, SABIC’s acting CEO, Yousef Abdullah al-Benhan stated that the company managed to increase its production by 2 percent over that of the first quarter of 2015 by tailoring its production to its customers’ demand and closely monitoring costs.

“We normally can’t get into predictions on prices, but what we can see is pressure on prices related to the crude price,” al-Benyan said. “However, we will continue to focus on factors that are under our control.”

SABIC’s performance is quite similar to that of Halliburton. On July 20, the Houston-based oilfield-services company reported a 93 percent drop in its earnings because the low oil prices mean low profit margins for its customers, energy drillers. Yet Halliburton too beat analysts’ expectations, and its stock actually rose a bit that day.

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And like Halliburton, SABIC is big enough to make large investments despite drops in profit. Halliburton hopes to take over a smaller rival, Baker Hughes, pending approval from U.S. federal regulators. But Halliburton plans to sell three drilling companies it owns not only to satisfy Washington, but to raise $2 billion to help pay for the Baker Hughes deal.

SABIC, meanwhile, is moving to expand its stake in shale gas projects in the United States through joint ventures, al-Benyan said in a separate interview with Bloomberg Businessweek. He said his company has signed a deal with Enterprise Partners of Houston to acquire the fuel and sell it in the United States or export it to Britain to help develop its petrochemical products more competitively.

“The main areas in the US we are looking to invest in are the Northeast and the South, as they fit our overall expectations including government support, labor laws and unions,” al-Benyan said. “At this point we are not looking to acquire any US companies.”

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For the past three months SABIC has been developing plans to expand both in the United States and in China because growth in Saudi Arabia is limited by that country’s shortage of gas. But the U.S. Marcellus shale formation that stretches from Pennsylvania, through West Virginia and into Ohio is the biggest source of gas in the country, where output has risen by 14-fold in the past eight years.

“We are looking for business opportunities in North America related to shale gas, and also some options in China related to coal-to-chemicals,” al-Benyan told Reuters. “Hopefully by the end of the year we will have an announcement” on the specifics of both deals.

By Andy Tully Of Oilprice.com

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