Saudis, oil majors discuss gas investments

Talks ahead of giant Aramco IPO

LONDON/DUBAI, April 11, (RTRS): Saudi Arabia and international oil companies have discussed gas venture opportunities inside the kingdom and abroad as part of the top crude-exporting country’s drive to diversify investments before the listing of national energy giant Saudi Aramco.

Saudi officials explored investment opportunities with firms including BP and Chevron to help develop its gas reserves, the world’s sixth largest, at a time of booming energy demand at home, four industry sources told Reuters.

Aramco has also looked into investing in gas ventures abroad, including with Italy’s Eni, the sources said.

The development revives memories of talks between Aramco and global majors at the end of the 1990s and early 2000s, known as the Saudi gas initiative. Most of those talks collapsed as the parties disagreed over returns on investment.

This time, Aramco is gearing up for a share listing next year, aiming to get a valuation of up to $2 trillion in what could be the world’s biggest initial public offering (IPO).

Chevron, BP, Aramco and Eni declined to comment on talks.

“We have a long-standing relationship with Saudi Arabia, so it is not uncommon for us to talk to them. We’re always having discussions about business development. I don’t have anything particular to say about Saudi Arabia,” Chevron CEO John Watson told Reuters last week.

BP Chief Executive Bob Dudley, who travelled to Saudi Arabia at the end of last year, said this year he wouldn’t rule out “creative partnerships” with Aramco but that an outright investment by BP in the IPO was unlikely.

The kingdom has a long-term goal of increasing the use of gas for domestic power generation, thus reducing oil burning at home and freeing up more crude for export.

This could help increase Aramco’s valuation as it generates more revenue from exports than selling oil at lower domestic prices - Saudi Arabia is the world’s fifth-biggest oil consumer despite being only the 20th-biggest economy.

Saudi Energy Minister Khalid alFalih, who is also Aramco’s chairman, said last year that Aramco was interested in investing in international upstream ventures, particularly gas, and could invest in importing gas into the kingdom.

Diversifying gas assets abroad would help Aramco achieve a better valuation and is attractive for investors, industry sources said. Riyadh also plans to raise domestic gas prices, a move seen as an incentive for foreign companies.

Aramco is preparing to reveal in the next few months a new gas strategy aimed at developing resources to keep pace with rising domestic demand, sources familiar with the discussions said.

It comes as part of the kingdom’s push to diversify its economy away from oil, a strategy known as “Vision 2030”, amid a global drive to phase out the most polluting fossil fuels.

Aramco wants nearly to double gas production to 23 billion standard cubic feet a day in the next decade.