PETALING JAYA: The investment of Saudi Arabia’s Aramco in the Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor, is positive for Petroliam Nasional Bhd (Petronas) and the project itself.
According to analysts, the US$7bil (RM31.1bil) investment by the Saudi national oil company for a 50% stake in the refinery and cracker assets within the Pengerang Integrated Complex could help relief the financial pressure on Petronas and help the progress of the project.
“Saudi Aramco’s decision to invest up to US$7bil in the Rapid refining complex in Malaysia is positive for the project’s outlook, and significantly reduces the financial burden placed on operator Petronas. The deal would help to lock-in future demand for Saudi crudes from Malaysia, which is set to swing to a net importer by 2020,” BMI Research said.
The research company pointed out that Malaysia’s crude balance will swing into a deficit in 2020 despite being a net exporter currently, as Rapid expands and the need for crude feedstock rises that declining domestic production will not be able to meet.
Petronas on Tuesday signed a share purchase agreement with Aramco to facilitate the latter’s proposed acquisition of a 50% equity in the refinery and cracker assets at Rapid.
Petronas president and group chief executive officer Datuk Wan Zulkiflee Wan Ariffin said the partnership brought together the strategic fit of both companies.
Meanwhile, Hong Leong Investment Bank (HLIB) said while Aramco’s investment could ease Petronas’ capital expenditure (capex) burden, it would not expect the national oil and gas company to increase its capex commitment.
“We do not expect a significant jump in capex spending by Petronas post-partial relief of its Rapid capex commitments (due to the investment by Aramco), as we expect the cash surplus to be mainly directed to its dividend payments to the Government,” the brokerage said in a report.
“The farm-in by Saudi Aramco will relieve Petronas group partially from its heavy capex commitment to Rapid, providing Petronas with more cash buffer to maintain its dividend payment to the Government,” it added.
As of the nine months ended September 2016, Petronas’ operating cash flow of RM36.1bil was only sufficient to cover for RM35.9bil in capex spending. The dividend of RM12bil in the period had to be financed by its cash reserves.
“With this deal, Petronas will be able to self-sustain payments to the Government without a further cash drain,” HLIB said of the participation of Aramco.
It noted the other primary beneficiaries of the Petronas-Aramco partnership included Dialog Group Bhd and Petronas Chemicals Group Bhd (PetChem). Dialog would benefit from higher prospects for expansions in tank terminal capacity and EPCC (exploration and production concession contract) jobs for refineries, while PetChem would benefit for its involvement in the petrochemical business in Johor and lesser burden in capex spending.