Saudi Aramco ups stake in Petro Rabigh from Sumitomo for $702 M

Saudi Aramco has agreed to purchase a 22.5% stake in the petrochemical joint venture Petro Rabigh from Japan’s Sumitomo Chemical for $702 million, as announced in a joint statement on Wednesday.

Aramco and Tokyo-headquartered Sumitomo Chemical currently own 37.5% of shares in Petro Rabigh, which was listed on the Saudi Exchange in 2008.

Upon completion of the transaction, which is priced at SAR7 per share, Aramco will become Petro Rabigh’s largest shareholder with an equity stake of approximately 60%, while Sumitomo Chemical will retain an equity stake of 15%.

Deal to help Aramco’s downstream expansion

Under the terms of the deal, all proceeds received by Sumitomo Chemical from the sale will be injected into Petro Rabigh, through a mechanism to be agreed with the JV.

Aramco will also provide additional funds to Petro Rabigh, via a mechanism also to be agreed upon, matching the $702m from Sumitomo Chemical to improve Petro Rabigh’s financial position and support Petro Rabigh’s future strategy, bringing the aggregate injection amount to US$1.4 billion.

In addition, Aramco and Sumitomo Chemical have agreed to a phased waiver of shareholder loans of $750m each, resulting in a $1.5bn direct reduction in Petro Rabigh’s liabilities.

These measures are expected to improve Petro Rabigh’s balance sheet and cash liquidity as part of a remedial plan that Aramco and Sumitomo Chemical intend to explore with Petro Rabigh.

It also includes initiatives to upgrade the refinery to help improve the profitability of the business, Saudi Aramco said.

The agreement also aligns with Aramco’s downstream expansion and Sumitomo Chemical’s move away from commodity chemicals toward specialty chemicals.

The oil giant, on Tuesday, announced a 3.36% fall in net profits to $29.07 billion in the April to June quarter results of the calendar year 2024, compared to $30.08 billion in the same quarter the previous year.

The company has increased its focus on the gas programme and the expansion of its new energy portfolio business.

Hussain A. Al Qahtani, Aramco’s senior vice president of fuels, said,

Aramco continues to identify opportunities to strengthen its downstream value chain, secure placement of its upstream crude oil with affiliated refineries, and convert more of its hydrocarbons into high-value aterials. By increasing our shareholding, we expect to achieve even closer integration with Petro Rabigh and facilitate its turnaround strategy.”

Seiji Takeuchi, Sumitomo Chemical’s senior managing executive officer, said:

Amid the evolving business landscape in both the refining and petrochemical sectors, Aramco and Sumitomo Chemical have considered options to find an appropriate turnaround strategy for Petro Rabigh. We believe this transaction will significantly enhance Petro Rabigh’s financial position.

Following the announcement, the Australian dollar moved higher, and the yield on policy-sensitive three-year bonds pared an earlier fall, as traders adjusted their bets on aggressive rate cuts.

Strategic importance of Petro Rabigh

The deal’s strategic importance was underscored by Aramco’s commitment to strengthen its downstream operations and Sumitomo Chemical’s focus on higher-margin specialty chemicals.

The project was initiated as a joint venture between Saudi Aramco and Sumitomo Chemical in 2005.

The initial phase of the project, known as Petro Rabigh Phase I, involved an investment of approximately $10 billion.

This refinery converts crude oil into a variety of refined products, including gasoline, diesel, and naphtha and is capable of processing 400,000 barrels of crude oil per day.

Petro Rabigh plays a crucial role in the Saudi economy by creating jobs, supporting local industries, and contributing to economic diversification efforts aligned with Saudi Vision 2030.

For Saudi Aramco, the project represents a strategic move to integrate its upstream crude oil production with downstream refining and petrochemical operations, thereby enhancing value creation across the entire hydrocarbon chain.