Aramco Oil Pipelines Company, which was formed for the transaction, will lease usage rights in Aramco’s crude oil pipelines for 25 years in return for a tariff paid by Aramco. The tariff will be backed by minimum volume commitments, but Aramco and EIG have not disclosed the level of those volumes or other details.
Once the deal is closed, Aramco will receive $12.4bn from EIG, “further strengthening its balance sheet through one of the largest energy infrastructure deals globally,” said Aramco.
Aramco will hold a 51pc majority stake in Aramco Oil Pipelines Company, and the EIG-led consortium will hold the balance. Aramco will also remain the full owner and operator of its crude oil pipeline network. Its crude production volumes will remain subject to Saudi government decisions.
“The transaction represents a continuation of Aramco’s strategy to unlock the potential of its asset base and maximize value for its shareholders,” the company said. “It also reinforces Aramco’s role as a catalyst for attracting significant foreign investment into the Kingdom.”
The pipeline deal is the first by the company since it raised $29.4bn in its initial public offering in late 2019.
Aramco is restructuring its downstream portfolio and seeking to extract value from some of its downstream assets, mainly to meet its hefty dividend commitments and contribute to Saudi Arabia’s GDP through massive investments in a new investment drive, known as Shareek.
Aramco recorded a $49bn profit in 2020, a 44pc year-on-year drop, but for the second year running its free cash flow of $49bn was insufficient to meet the $75bn dividend it paid shareholders. The bulk of that dividend goes to the Saudi government, which owns around 98pc of Aramco’s equity. The firm must also pay $75bn to the PIF sovereign wealth fund through 2028 as the price for its 70pc stake in petrochemicals firm Sabic, plus loan charges on deferred payments. That stake was purchased from the PIF.
“This landmark transaction defines the way forward for our portfolio optimization programme,” chief executive Amin Nasser said of the EIG pipeline deal, an indication other such deals to raise cash for Aramco may follow.
Aramco has resorted to borrowing to help meet its commitments. The company raised $8bn from selling dollar-denominated bonds in November. Its net debt to equity ratio last year rose to 55pc from 26pc in 2019.