© Reuters. FILE PHOTO: An employee looks at Saudi Aramco’s oil facility in Abqaiq, Saudi Arabia, on October 12, 2019. (Reuters) / Maxim Shemetov.
Written by Hadeel Al-Sayegh, Saeed Azhar and Davidi Barbuscia
DUBAI (Reuters) – Aramco Saudi Arabia (SE 🙂 Other Gulf oil producers are following in Abu Dhabi’s footsteps with plans to raise tens of billions of dollars by selling stakes in energy assets, and take advantage of rebounding crude oil prices to attract foreign investors.
These moves, in a region that traditionally owns its refineries, power plants and pipelines, highlight the pressure on petro-states to raise funds to diversify their revenue sources and support national finances that have been hit by the recent slump in oil prices and the coronavirus pandemic.
Two sources familiar with the matter said that Saudi Aramco, after selling a large minority stake in its oil pipelines to foreign investors for $12.4 billion in June, is scrutinizing the sale of assets in refining and petrochemicals.
The people said Aramco is looking to sell its gas pipelines under a leaseback arrangement, and could offer stakes in refineries, power plants and potential export terminals in the future.
One of the sources said stakes in exploration and production projects such as hydrogen could also be offered to strategic investors.
Other sources said small producers Oman and Bahrain are also considering selling similar assets.
“All the oil producers are looking to recycle the capital they have tied up in infrastructure assets and use it for other things,” said a senior executive at an energy-focused investment firm, who declined to be named.
“Private investors find these assets attractive.”
Saudi Aramco declined to comment.
The Abu Dhabi National Oil Company (ADNOC) was the first major regional oil company to seek outward investment, forging partnerships in both strategic and non-core assets to raise more than $30 billion over the past four years.
ADNOC is now preparing to list its drilling business, whose enterprise value in 2018 was about $11 billion, and will be its second initial public offering of its units after listing its fuel distribution arm, ADNOC Distribution, in 2017.
Sources familiar with the deal stated that ADNOC has made attracting foreign investors a key component of the upcoming initial public offering, in line with national efforts to boost the stock market in Abu Dhabi.
Conventional energy investments remain popular despite the shift away from fossil fuels. Assets such as pipelines and power plants provide stable long-term returns in a low interest rate environment.
ADNOC and Aramco did not specify how much money the stake sale would be spent on. Both are looking to invest in clean energy projects. Aramco also needs to secure its stake from minority shareholders in the proposed company’s $75 billion in annual profits in the five years since its 2019 IPO.
ADNOC declined to comment on its future plans. The company reiterated that transaction proceeds between 2017 and 2020 were reinvested in its core businesses and strategic growth projects.
The pace of Gulf energy asset deals is expected to pick up and attract more interest as oil prices, backed by production cuts by OPEC and other oil producers, rise above $70 a barrel. Oil has gained more than 40% since the beginning of the year.
Sources told Reuters earlier that the Omani Energy Company is studying the possibility of selling its drilling business, Abraaj Energy Services, and has also appointed consultants to sell its 12 percent stake in Portuguese power grid operator Ren.
A spokesman for Bahrain’s Nogaholding, which manages the government’s portfolio in oil and gas assets, said it was in the process of “a full review of the company’s current business and strategic plans”.
According to a source who advised an investor, the string of deals coming from the UAE and Saudi Arabia is also creating a benchmark for the assets of other regional players.
The source said potential investors are looking to achieve a double-digit return on investments in energy infrastructure assets because they have to hold their capital for 25 years.
However, smaller countries with lower sovereign ratings and pressure for fiscal adjustment may have to push in order to attract foreign investors.
“The Omanis may conclude the deals by absorbing some of the risks themselves to attract investors,” the source said.
Oman’s OQ did not respond to a request for comment.