Saudi oil giant Aramco sells minority oil pipe stake in £9bn deal

Suban Abdulla
·4 min read
EASTERN PROVINCE, SAUDI ARABIA - OCTOBER 12, 2019: A worker at an oil processing facility of Saudi Aramco, a Saudi Arabian state-owned oil and gas company, at the Abqaiq oil field. On 14 September 2019, two of the major Saudi oil facilities, Abqaiq and Khurais, suffered massive attacks of explosive-laden drones and cruise missiles; the Houthi movement, also known as Ansar Allah, claimed responsibility for the attacks. Stanislav Krasilnikov/TASS (Photo by Stanislav Krasilnikov\TASS via Getty Images)
State-owned Aramco will retain a 51% share in the oil pipeline arm, as well as full ownership and operational control of the network. Photo: Stanislav Krasilnikov\TASS via Getty Images

Saudi Aramco (2222.SR) has agreed a $12.4bn (£9bn) deal with a consortium of investors that would give the group a minority stake in Aramco's pipeline assets. 

The deal announced on Friday by Aramco and the group led by EIG Global Energy Partners is for a 49% share. 

State-owned Aramco will retain a 51% stake in the pipeline arm, as well as full ownership and operational control of the network.

Under the plans, Aramco will lease the usage rights of its pipelines to the newly formed Aramco Oil Pipelines Company. 

The new venture is valued at $25.3bn, with the group retaining rights to 25 years of tariff payments for oil transported through the kingdom’s crude network. This will not affect Aramco’s oil production, the company said. 

Washington-based private equity firm EIG beat off a number of other bidders to land the deal, including Apollo Global Management (APO) and Global Infrastructure Partners. Fellow asset managers Blackrock (BLK) and Brookfield (BAM) were also in the running at one point, according to Reuters.

It is the biggest deal the firm has announced since its record-breaking initial public offering (IPO) in 2019. 

While Aramco did not specify which other firms were part of the consortium, it is believed EIG is holding discussions with Mubadala, the UAE sovereign wealth fund, about joining the investor group.

The coronavirus pandemic took a heavy toll on the company, with profits slumping 45% in March 2020. It reported a 50% profits plunge in its half-year report in August last year. 

Shares in the company shed most of their gains at the onset of the crisis since its blockbuster $29.4bn listing in December 2019. But they have been in a mostly uphill recovery since September 2020.

Saudi Aramco shares since listing on 11 December 2019. Chart: Yahoo Finance
Saudi Aramco shares since listing on 11 December 2019. Chart: Yahoo Finance

It comes after the company unveiled its profit declined 44.4% to $49bn, This was down from $88.2bn in 2019 and $111.1bn in 2018. There was a 30.7% decline in oil revenues last year for the Saudi government.

Last month it reported its sales were hit by a decline in energy demand due to the COVID crisis and lower crude (CL=F) oil prices.

The world's largest oil producing firm produced the equivalent of 9.2 million barrels per day (bpd) of crude oil in 2020.

READ MORE: Saudi Aramco sticks with $75bn dividend amid tumultuous year for oil

Oil prices have yo-yoed in the last year since the onset of the coronavirus pandemic, after demand in China collapsed by 20% in February after the country and the world’s biggest importer locked down for COVID.

In March 2020 a price war, between Saudi Arabia and Russia over how to respond to respond to a drop in demand, sent shockwaves across the oil markets and added to black gold’s struggles.

As a result, in April for the first time in history US futures (BZ=F) traded below zero, as the world was so awash in crude. On 20 April 20, West Texas Intermediate (WTI) crude (CL=F) collapsed to minus $40.32 per barrel. This meant that producers paid buyers to take the oil off their hands.

But, fences between the two oil powerhouses were mended following an intervention from former US president Donald Trump who brokered a peace deal, which resulted in the Organisation of the Petroleum Exporting Countries and its allies' (OPEC+) largest output cuts.

In a move designed to bolster the oil market, Russia agreed in April to reduce its production by more than 2 million bpd — an unprecedented voluntary cut — along with other leading oil producers and the OPEC.

Since April last year, OPEC+ has progressively reduced the production cuts and is expected to release an extra 500,000 barrels per day (bpd) into the market in January.

The OPEC+ agreed to monthly production hikes from May to July this year. The organisation said it would bring back 350,000 bpd of supply in May, another 350,000 bpd in June and a further 400,000 bpd or so in July.

But, despite a pickup in prices towards the end of last year, there is still some uncertainty over the market levels for petroleum.

The organisation consists of the 13 members of the OPEC, led by Saudi Arabia and their six allies led by Russia. 

However, despite the OPEC+ might, nations outside the OPEC cartel still have a major effect on the oil market, especially the US which produces 11 million barrels of crude per day.

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