Saudi Aramco signs deals with Japanese partners

Dec 14, 2004 01:00 AM

Earlier this year, Saudi Aramco significantly bolstered its already strong ties to Japan by signing two major agreements with Japanese partners. On May 9 in Dhahran, the company signed a landmark memorandum of understanding with Sumitomo Chemical for a joint feasibility study of the planned development of an integrated refining and petrochemical complex at Rabigh on the Red Sea.
Saudi Aramco President and CEO Abdallah S. Jum'ah said the proposed plant would be "the largest such facility built in a single stroke." Then, on July 5 in Tokyo, the company signed an agreement with Shell to acquire a 9.96-% strategic shareholding in Showa Shell Sekiyu, a publicly traded Japanese refining and marketing company.

The deal will expand Saudi Aramco's worldwide refining and marketing presence and ensure a continued reliable source of high-quality refined petroleum products to Japan, one of the company's most important export markets for crude oil.
In the Sumitomo agreement, Jum'ah signed on behalf ofSaudi Aramco and the Kingdom, with Sumitomo President and CEO Hiromasa Yonekura signing for Sumitomo. Signers for the Showa Shell agreement were Abdulaziz F. Al-Khayyal, Saudi Aramco senior vice president, Refining, Marketing & International, and Robert Routs, managing director, of Shell Global Group.

The Sumitomo agreement
The proposed Rabigh refining/petrochemical venture will be Saudi Aramco's first major investment in a petrochemical facility in the Kingdom. Sumitomo's Yonekura said, "It's a unique project, and, when completed, it will be the most cost-competitive such facility in the world."
Sumitomo is Japan's second largest chemical manufacturer, with sales of approximately $ 11 bn in fiscal year 2002. The proposed plant is envisioned to produce 2.2 mm tons of olefins (ethylene and propylene), large volumes of gasoline and other refined products. Saudi Aramco will supply the venture with 400,000 bpd of crude oil, 95 mm cfpd of ethane, and 10,000 bpd of butane.
Sumitomo will bring to the deal, along with its direct investment, its extensive proprietary petrochemical technology and marketing base. The companies have retained a project management services contractor, Foster Wheeler, financial adviser Sumitomo Mitsui Banking Corporation and other necessary advisers to proceed quickly with the execution of the project.

In a speech following the signing ceremony, Jum'ah praised Sumitomo's "leadership position in the petrochemical industry and a well-deserved reputation for their research and development activities, their application of advanced technology and their innovative approach to the petrochemical business."
He added, "The agreement signed will have lasting benefits for the Kingdom for many decades to come and is indicative of the efforts exerted by the Kingdom's leadership to secure a better future for our children and for our grandchildren."

In his speech, Jum'ah also emphasized the "tremendously positive working relationships" that Saudi Aramco has enjoyed with various Japanese companies and the continuing strong commercial ties between the two countries. Yonekura said Saudi Arabia and Japan share the fundamental goal of enhancing the welfare of their people while pursuing corporate business objectives.
"Because of this, I feel a strong bond uniting our two companies -- as if we were somehow predestined to collaborate with Saudi Aramco on the project," he said. "A few weeks ago, I had the privilege of visiting Saudi Aramco's magnificent refinery at Rabigh and other facilities of the company," Yonekura added. "My colleagues and I were deeply impressed by the excellent quality of the grand-scale work done by Saudi Aramco. ... We place the deepest trust in the high level of competence of Saudi Aramco, both as an organization and as individuals."

The existing Rabigh Refinery is a 400,000-bpd "topping" facility built in 1989 to extract high-value "white" products, such as naphtha, from crude oil and refine out other products. The government's 50-% share of the refinery was turned over to Saudi Aramco in 1993 as part of the royal decree integrating the Kingdom's oil industry. Saudi Aramco acquired the remaining 50 % on June 1, 1995.
The refinery is located an hour and a half north of Jeddah and boasts a fine natural harbour guarded by a submerged barrier reef. Its crude feedstock is shipped south by tanker from Yanbu', which receives oil from the company's main Eastern Province fields via the East-West Pipeline. A pipeline is currently being built to replace the tanker operations.

Third-party, private-sector investment opportunities are expected to be created by the proposed Rabigh project, for utilities and other related infrastructure. Jum'ah stressed that the agreement with Sumitomo "underscores the Kingdom's favourable investment climate, and the competitive advantages Saudi Arabia enjoys in the petrochemical sector."
"The combination of abundant raw materials, wise economic policies, a strong fiscal framework, economies of scale and growing demand all serve to make the Kingdom a choice destination for foreign and domestic direct investment," Jum'ah said.
He added that the agreement "adds an important new dimension to our joint-venture portfolio, and is yet another signal that Saudi Arabia is open for business to the serious, far-sighted investor." The joint feasibility study will, among other objectives, determine the capital and operating costs of the project. Saudi Aramco and Sumitomo will hold equal shares in the joint-venture company.

The Showa Shell Sekiyu agreement
Saudi Aramco will supply Showa Shell with a minimum of 300,000 bpd of crude. Considered in tandem with other company supply commitments to that nation, this makes Saudi Aramco the top supplier of oil to Japan. Currently, the company supplies nearly a million bpd of crude oil to Japan.
At the signing ceremony of the Share Purchase Agreement in Tokyo, Jum'ah said, "Saudi Aramco's world-class upstream capabilities, as well as our 60 years of refining experience, will generate significant synergy with Showa Shell's strength as a petroleum refining and marketing company in Japan, one of Saudi Aramco's historical core markets in its global crude supply chains."

The transfer of shares called for in the agreement was tentatively scheduled to be completed later this year, 2004, after obtaining all regulatory approvals.
Saudi Aramco has also agreed in principle to acquire an additional 4.99 % of Showa Shell from Shell, subject to satisfaction of certain commercial conditions.
Showa Shell is one of the largest refiners in Japan, with access to 515,000 bpd of refining capacity through three affiliated refining companies. The company also markets refined products through a Shell-branded retail network of about 5,000 service stations.

The new partnership with Showa Shell also builds on the growing relationship between Saudi Aramco and Shell, which currently have other business partnerships in the United States and Saudi Arabia.
"Saudi Aramco also has a long history of successful business alliances with international partners in North America, Europe, the Middle East and the Far East," Jum'ah said. "Mutually beneficial joint ventures have become one of Saudi Aramco's greatest strengths."
"I view this new agreement (with Showa Shell) as an added strand in the fabric of our existing Japanese relationships, which continue to be strong and solid," Jum'ah said in a speech to Japanese industrial leaders a day after the signing. "We value each of the ties we have with a Japanese company, organization or institution, and these are ties that have withstood the test of time."

Regarding security issues, Jum'ah stressed: "I am confident in the safety and security measures we have in place, and in our ability to provide an uninterrupted supply of crude oil to global markets now and in the weeks, months and years to come."
Jum'ah emphasized the symbiotic nature of the relationship between Saudi Aramco and Japan.
"Ours is an interdependent partnership, where the contributions from one side are matched by the contributions of the other, to the mutual benefit of both parties." He lauded the role played by Japanese technology, expertise and equipment throughout Saudi Aramco's operations, and by contributions to the company's recent wave of mega-projects by Japanese engineering, construction and manufacturing firms.
Jum'ah said, "I believe the best days of our relationship still lie ahead."

Source: Saudi Business Focus
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