By Ben Dummett and Summer Said
Saudi Arabia's energy giant is in advanced talks to sell up to a 49% stake in its oil pipelines to a consortium of U.S., Chinese and local investors for between $10 billion and $15 billion, according to people familiar with the matter.
Saudi Arabian Oil Co., known as Aramco, is in talks to sell the minority stake to a group of investors that could include U.S. buyout giant Apollo Global Management Inc., energy investment firm EIG Global Energy Partners, Chinese infrastructure fund Silk Road Fund, and China Reform Fund Management Co., a Chinese private-equity fund, along with Saudi pension funds, the people said.
The talks represent another far-reaching attempt to monetize Saudi Arabia's prodigious oil assets -- once considered so strategic that even a minority stake sale seemed far fetched. With the ascension of Crown Prince Mohammed bin Salman, however, the kingdom has been more willing to lure foreign investors and cede some control over its oil industry in exchange for cash. Over several years, Prince Mohammed promoted an international listing of Aramco shares, before ultimately deciding on a local listing of a very small slice of the company.
By holding on to a majority stake in the pipeline business, Saudi Arabia assures it remains in operational control of the assets. A deal would set up a joint venture between Aramco and any winning bidder, according to people familiar with the matter. That joint venture would receive proceeds from Aramco for transporting oil along the pipelines. Details of the revenue-sharing agreement under any deal couldn't be learned.
In some regard, the talks mark another step in a partial reversal of Saudi Arabia's nationalization of its oil fields and infrastructure during the 1970s and 1980s. The inclusion of Chinese investors in the group negotiating for the stake could also add an element of geopolitical tensions to any deal.
A Chinese investor is important for Saudi Arabia since the country accounts for a large proportion of expected global oil demand growth. But it would also provide an opportunity for Beijing to increase its presence in a region long beholden to U.S. military power projection. The Biden administration is currently recalibrating its relationship with Saudi Arabia, including trimming the U.S. military presence in the Mideast.
The final structure of any winning group is still in flux, these people said, and talks could still collapse. One possibility is that either Apollo or EIG drop out of the consortium, according to people familiar with the matter. That would help ensure all players in the group have enough equity in the deal to make it worth their while.
Still, there is recent precedent for two Western anchor private-equity investors teaming up. Abu Dhabi National Oil Co. successfully convinced BlackRock Inc. and KKR & Co. to drop their individual bids and join forces to secure a $4 billion midstream pipeline deal in 2019.
Under any agreement, Aramco is aiming to sell the minority stake for between $10 billion and $15 billion in a deal that could value Aramco's network of oil pipelines at more than $20 billion, these people said. A deal could be announced as soon as this week.
Bloomberg News reported earlier this week that Apollo was part of an investor group aiming to buy a $10 billion stake in the pipeline assets.
Saudi Aramco operates more than 90 pipelines across the country, including an east-west crude pipeline that links oil fields in the country's eastern province to the port at Yanbu along the Red Sea. It couldn't immediately be learned if all these pipelines would be included in any deal.
The deal is meant in part to help Saudi Arabia raise money from its state-owned energy business to fund investments in technology, tourism and other industries. The kingdom has long sought to reduce its reliance on oil. Aramco, meanwhile, wants an international consortium to demonstrate the attractiveness of the country as an investment destination for foreigners, according to people familiar with the matter.
Saudi Arabia's reputation took a hit among foreign investors after the 2018 killing of journalist Jamal Khashoggi in 2018. In February, the U.S. government cleared the release of a long-delayed intelligence report that said Prince Mohammed, the country's day-to-day leader, ordered the operation that led to Mr. Khashoggi's killing. Prince Mohammed has acknowledged the killing happened on his watch, but said he didn't order it.
A local IPO of Aramco shares in 2019 failed to attract significant foreign participation. International investors, though, have flocked to buy the country's sovereign debt. Two bumper debt issues from Aramco also drew overseas interest.
The company hired Moelis & Co. late last year to devise a strategy for selling stakes in some subsidiaries as the kingdom seeks cash to counter a pandemic-inspired downturn, according to people familiar with the matter.
--Sarah McFarlane and Miriam Gottfried contributed to this article.
Write to Ben Dummett at email@example.com and Summer Said at firstname.lastname@example.org
(END) Dow Jones Newswires