NEW DELHI: Strained capital expenditure budgets for Saudi Aramco and a parallel fall in crude oil prices are both factors that may have delayed the company picking up a stake in Reliance Industries’ oil-to-chemical (O2C) unit, note analysts from global brokerage house Jefferies. However, a crude price averaging at around $65 per barrel would help
Aramco achieve the required capex to buy a stake, they added, since both companies have indicated that talks are still going on regarding their earlier announced partnership. In August 2019, Reliance had announced that talks had begun for the sale of a 20 per cent stake in the O2C business to Aramco.
A non-binding MoU was signed between the two entities, though the deal has so far failed to fructify due to undisclosed reasons. Analysts have noted even earlier that the turmoil in crude oil prices last year had potentially complicated valuation negotiations. However, both entities indicate that they are continuing to discuss the deal.
Investment bank Morgan Stanley had noted last week that Aramco’s 2020 earnings conference call shows 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.” Jefferies analysts add that Aramco’s IPO prospectus mentioned its focus on downstream investments in high growth economies of China, India and Southeast Asia. “An investment in RIL’s O2C subsidiary could give Aramco a similar footprint - a stake in India’s largest O2C project with a long-term crude supply agreement and a participation in fuel retailing via the RIL-BP joint venture,” they wrote. Aramco’s pledge to pay a $75 billion annual dividend, however, has limited its capex budget to about $35-40 billion.
Crude prices up again
The blockage of the Suez tunnel due to a ship that ran aground has given a leg up to Brent crude prices, which rose 4% to hit $64.4 per barrel.