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Saudi Aramco to follow ADNOC strategy and sell pipeline assets

Oil is too low for comfort and in order to generate much-needed revenues, Saudi Aramco is expected to sell pipeline assets

The second wave of the coronavirus is real and it hit the Middle East in early October More than 20 million barrels of oil is floating on ships without a final destination Saudi Aramco is in early talks to potentially structure a deal worth more than $10 billion to sell a part of its pipeline business

Oil is too low for comfort and in order to generate much-needed revenues, Saudi Aramco is expected to sell pipeline assets.

Oil retreating
 
Oil prices retreated once again on concerns about a second wave in Europe and a third wave in the U.S. France reported more than 30,000 positive cases on Thursday when the U.S. reported more than 60,000 cases for the first time in more than two months.

 The second wave of the coronavirus is real and it hit the Middle East in early October, according to Dr. Ziad Memish, Saudi Arabia’s former deputy minister of public health.

“We do know the Covid-19 virus is mutating in almost every country, including in the Middle East,” he said.

“In the Eastern Mediterranean region, the second wave has started in some countries and the highest affected in the last few weeks are Iran, Iraq, Morocco, and Jordan.”

But OPEC+ will guard against a price decline, according to OPEC’s Secretary-General Mohammad Barkindo. “I want to assure you that the OPEC, non-OPEC partnership will continue to do what it knows best, by ensuring that we don’t relapse into this almost historic plunge that we saw,” Barkindo said.

Read: Crunch time for GCC economies’ oil price dilemma

Oil cuts compliance becoming an issue? 

Tensions within the cartel are mounting to keep OPEC production cuts compliance around 100%.

Compliance has become a key issue for OEC+, which is enforcing extra production cuts that non-compliers must make by the end of the year to compensate for exceeding quotas in the first few months of the agreement. The organization has pledged to remove 7.7 million bpd from the market between August and December, part of a two-year tapered deal that runs until April 2022.

United Arab Emirates oil minister Suhail al-Mazrouei said that OPEC+ still plans to ease its crude production cuts in January, to 5.76 mn bpd.

“We will be able to gradually increase production, according to the terms of the deal, without detriment to the market,” he wrote in the energy ministry’s monthly magazine.

The IEA said that the plan to taper further from January leaves little room for the market to absorb any extra supply in the coming months, some of which may come from a resurgent Libyan upstream sector.

Saudi state-controlled Aramco’s chief executive Amin Nasser gave a more bullish outlook on the prospect of demand recovery, albeit one that is dependent on the suppression of COVID-19.

Saudi increased oil shipments in September, offsetting lower flows from the UAE as the smaller nation started to compensate for earlier over-production.

Exports from Saudi Arabia rose by more than 480,000 barrels a day, almost exactly offsetting the drop in shipments from the UAE last month. Kuwait and Iraq increased flows by smaller amounts.

The four nations shipped a total of 13.61 mn barrels a day of crude and condensate last month, up by 164,000 barrels a day from August, tanker-tracking data monitored by Bloomberg show.

Flows from the four producers account for more than 70% of production among members of the OPEC. 

More than 20 million barrels of oil is floating on ships without a final destination. 

Read: Can Saudi Aramco keep its pledge to investors in its 1.5% share sale IPO?

Aramco to sell pipeline assets

Saudi Aramco is in early talks to potentially structure a deal worth more than $10 billion to sell a part of its pipeline business to asset managers, including the world’s biggest, BlackRock, Reuters reported recently.

The aim is to raise some much-needed cash. With low oil prices, Aramco’s profits tumbled and debts are soaring with the acquisition of petrochemicals giant SABIC. 

Aramco has cut CAPEX and is also trying to keep its pledge to pay out annual dividends of $75 bn to shareholders, following the IPO sale of 2% of Aramco. 

Aramco is now looking to optimize its portfolio and “squeeze” more value out of it, including by potentially selling assets, chief executive Amin Nasser told Energy Intelligence in an interview published recently.

 According to Reuters, a possible sale of a stake in Aramco’s pipeline business could emulate the deals that Abu Dhabi National Oil Company (ADNOC) has struck in recent months to monetize minority stakes in its oil and gas infrastructure.

In June, ADNOC announced a $20.7-bn deal with six international companies for the acquisition of a 49% stake in its gas pipeline assets.

The acquisition will give the buyers lease rights to 38 pipelines, but ADNOC will retain ownership of the assets and responsibility for capital expenditure plans.