What is Aramco’s capital outlay for Pengerang projects?

The price of crude is languishing under $50 a barrel, far below the level many Gulf producers need to balance their budget

 PETROLIAM Nasional Bhd (Petronas) has stated many times that when it undertakes projects such as the Petronas Refinery and Petrochemical Integrated (Rapid) project in Pengerang, Johor, it makes an investment decision without having to depend on joint venture partners.
The reason is because Petronas itself has ample cash and the relevant expertise to undertake huge petrochemical plant projects. However, if there were suitable partners, it was open to joint ventures.
Then came Saudi Aramco in February this year with a promise to invest US$7bil into selected ventures and facilities located within the Pengerang Integrated Complex (PIC) together with Petronas.
The initial agreement signed in February was for the state oil company of Saudi Arabia to acquire a 50% stake in the refinery and cracker plant from Petronas and also assume its proportionate share of shareholder advances tied to the facility.
There was no disclosure on the capital outlay by Aramco for the venture then.
Last Friday, which is seven months later, Aramco has sealed not only one but two deals with Petronas.
Apart from finalising the agreement to take a 50% stake in the refinery and cracker plant in Pengerang from Petronas, the Saudi Arabian company is also taking up a similar stake in a polymer plant owned by Petronas Chemicals Group Bhd (PetChem).
As PetChem is a listed company - unlike Petronas - there were higher levels of disclosure in the transactions with Aramco.
Aramco is forking out US$900mil (RM3.8bil) for a 50% equity stake in PRPC Polymers Sdn Bhd. It also will assume its proportionate share of shareholder advances to the polymer plant and future capital commitments.
Based on the announcement, one assumes that so far PetChem has funded the polymer plant project by advancing capital. Following the deal with Aramco, PRPC Polymers will take up borrowings on its own.
According to the announcement, PetChem’s portion is RM1.147bil (US$255mil). And an analyst report has stated that the polymer plant would require another US$1bil in capital commitments for its completion in 2019.    
Considering the sound financial standing of both PetChem and Aramco, banks would be lining up to give them funding for the plant. Assuming the rest of the capital commitment is financed by additional borrowings, Aramco’s capital outlay for the PRPC Polymers would be about US$900mil.
In PetChem’s announcement, it was stated that deal with Aramco was inter-conditional to the Saudi Arabian oil and gas firm taking up a 50% interest in the refinery and cracker plant.
However there were no financial details as to how much Aramco is paying for its 50% stake in the refinery and cracker plant, the debts to assume and future capital commitments.
Without details, it is still a guessing game on the total capital that Aramco will fork out for its 50% share in the investments in the two petrochemical facilities in Pengerang. Not to mention the liabilities it would assume.
When Aramco’s venture into Pengerang was announced in February this year, Petronas in its official statement did not state how much money the state-owned Saudi Arabian oil and gas company would plough into its ventures in the project.
The government bandied about a broad figure of US$7bil that Aramco would put into projects in Pengerang together with Petronas.
The investment is about the same that Saudi Arabia has committed to projects in Indonesia but a far cry from the US$65bil that it has committed to China. Towards this end, Indonesian President Jokowi was reported to express his disappointment with the low investment by Saudi Arabia into that country.
It is quite clear why Aramco wants a stake in the polymer facility.
Aramco will supply 70% of the crude feedstock for the refinery that has a capacity of 300,000 barrels of crude per day. The output from the refinery will be the feed material for the polymer plant.
Hence Aramco will have exposure to the full cycle of petrochemical activities in Pengerang – from the refinery to production of polymer – something that will serve it well as it seeks to diversify its dependent on oil money to fund the government budget.
However Aramco’s capital outlay - if the borrowings are not included – is still a guessing game. Based on public information so far, it is far from the US$7bil.
Perhaps, there would be more Petronas-Aramco ventures in the future until it the US$7bil target is achieved?
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