PETALING JAYA: The final terms of the investment by Saudi Aramco into Malaysia’s biggest oil refinery project is likely to be firmed up only within a year’s time, sources said.
Following the inking of the agreement between Aramco and Petroliam Nasional Bhd (Petronas) two weeks ago, discussions have intensified between the two groups, but it will take time for the definitive agreement to be inked, considering the scale of the project and the fact that the deal involves two large national oil companies.
It is also learnt that Aramco, the world’s largest oil and gas (O&G) company, was seeking some concessions from Petronas in terms of valuation of the deal. The discount is believed to be more than US$500mil equivalent in equity value for the joint venture (JV).
“Petronas is studying all aspects of the proposal, looking at the bigger scheme of things and the value of the project in total, which comes to several billions. Bear in mind that Petronas has always been prepared to go it alone in the project. But with Aramco now coming into the picture, Petronas is looking at what else Aramco can offer before agreeing to any concessions.
“The amount (of the concession) is not big if Aramco’s participation in the project brings a return that is manyfold higher (to Petronas),” said a source.
Apart from the concessions, there are other matters that have to be determined. For example, which of the two national oil companies will be tasked with the job of marketing the products that will be produced by their JV in Pengerang. Another is determining the appropriate personnel to run the operations there.
Last Tuesday, Saudi Aramco signed an agreement with Petronas to acquire a 50% stake in the refinery and cracker project in the Refinery and Petrochemical Integrated Development (Rapid) project in the Pengerang Integrated Complex (PIC) development in Johor. The 6,242-acre PIC is Petronas’ largest downstream project and forms part of the larger Pengerang Integrated Petroleum Complex (PIPC).
Upon completion of the investment, this would likely make Aramco the single-largest investor in Malaysia.
It has been reported that the worldwide media coverage on Aramco’s entry into the Rapid project has raised the profile of the PIPC in the international market. This, in turn, is likely to enhance the confidence among O&G companies to establish their operations and businesses in PIPC.
Importantly, the Aramco-Petronas deal, which obliges Aramco to provide as much as 70% of the refinery’s feedstock requirements, has increased the certainty of the Rapid implementation without financial and crude supply problems. This, in turn, means that the Rapid project has become bankable from day one.
Additionally, the availability of feedstock from the steam cracker plant may attract more downstream petrochemical plants to be constructed within PIPC.
Two weeks ago, rating agency Moody’s said Aramco’s investment into Rapid is “credit positive” for Petronas because it would reduce the latter’s capital outlay for the project.
“The tie-up also brings in a strong downstream partner for Petronas, given that Aramco has a strong track record in the development of large-scale projects. Because Aramco and Petronas will hold equal ownership in the Rapid project, funding requirements and project execution risk will be spread between them. Aramco will also supply up to 70% of Rapid refinery’s crude feedstock requirement, enhancing long-term energy security both for Malaysia and South-East Asia,” the rating agency said.
Moody’s expects Petronas to be able to maintain a net cash position in 2017, compared to its initial assumption that the company would need to incur incremental borrowings to fund the Rapid project fully on its own.
“Therefore, Petronas’ credit metrics will continue to remain well positioned for its A1 ratings.”