Saudi Aramco says a potential deal with India's Reliance is 'live'

SAUDI ARAMCO remains in discussion with India's Reliance Industries to buy a 20 per cent stake in the Mukesh Ambani-owned firm, said Morgan Stanley citing the Saudi firm's analyst call post announcing 2020 earnings.

In August 2019, Reliance chairman Ambani announced talks for the sale of 20 per cent stake in the oil-to-chemicals (O2C) business, which comprises its twin oil refineries at Jamnagar in Gujarat and petrochemical assets, to the world's largest oil exporter.

It put $75 billion as the value of O2C business after signing a non-binding letter of intent with Saudi Aramco.

"Saudi Aramco's CY20 conference call indicated that it is still in discussion with Reliance to evaluate existing opportunities as potential partners, regarding the non-binding MoU signed with Reliance for its O2C business," Morgan Stanley said in a note.

"Reliance had recently announced carving out the O2C business as a separate subsidiary to support strategic partnerships and new investors in order to accelerating its new energy and material plans. We expect the stake sale discussions to pick up pace – we see valuations and asset prices rebounding to levels seen in August 2019 with a much-improved industry outlook."

Besides refineries and petrochemical plants, the O2C business also comprises a 51 per cent stake in the fuel retailing business.

Reliance refineries are one of the most complex in the world, allowing it to earn a significant premium to the benchmark Singapore gross refining margin.

Its petrochemical complexes rank among the biggest in the world, whose dependency on outside raw materials is minimal, and has leadership positions both in the domestic polymer and polyester markets.

Bullish outlook

Saudi Aramco's chief executive has said that the company was optimistic about the oil market and bullish about demand recovery.

"We are very bullish about oil demand going forward," chief executive Amin Nasser told an analyst call.

"We are pleased that there are signs of a recovery. China is also very close to pre-pandemic levels. So in Asia, East Asia in particular, there is strong pickup in demand."

He said demand in Europe and the US would improve with more deployment of vaccines. Global oil demand is expected to reach 99 million barrels per day by the end of this year, he said.

Aramco is betting on an Asian-led rebound in energy demand this year after it reported a steep slide in net profit for 2020 and scaled back its spending plans.

Nasser said Aramco was in the detailed engineering phase to raise its maximum sustained capacity to 13 million barrels per day (bpd), a rise of 1 million bpd.

The Covid-19 pandemic took a heavy toll on the company and its global peers in 2020, but oil prices have rallied this year as economies recover from last year's downturn and after oil producers extended output cuts.

The world's largest oil exporter said net profit fell 44.4 per cent to 183.76 billion riyals ($49 billion) for the year ended December 31.

Aramco declared a dividend of $75 billion for 2020, but Nasser said there was no intention to increase the dividend this year from what's been pledged.

Oil prices lost just over a fifth of their value in 2020. Brent crude last traded at $64.53 a barrel on Friday (19) compared with around $51 in December.

Aramco said free cash flow fell to $49 billion last year from $78.3 billion in 2019.