SABIC to Buy Shell Stake in SADAF

Saudi petrochemicals giant SABIC and oil-chemicals major Shell have has signed an agreement calling for SABIC to acquire Shell’s 50% share in the joint venture in Shell Arabia (SADAF) for $820 million, the two groups announced on Jan. 22. The Saudi group is exercising an option of the original agreement allowing it to renew or end the partnership by the end of 2020. SABIC said it hopes to complete the transaction is before the end of this year.

The transfer price is based on the net value of the jv’s assets.  The company established in 1980 operates six petrochemical plants at Al Jubail, on the Gulf coast of Saudi Arabia, with total annual output of over 4 million t/y of chemicals, including ethylene, crude industrial ethanol and styrene.

Simultaneously, the partners have signed a Memorandum of Understanding (MoU) to boost their cooperation on other unspecified international and local investments. “We will continue to explore potential future opportunities with SABIC,” Graham van’t Hoff, executive vice president of chemicals at Shell, told news agencies.

Shell said the acquisition will enable SABIC to further optimize operations at SADAF and invest in additional funds in the facilities, integrating them with its other affiliates. By the same token,  Shell will be able to focus its downstream activities and make selective investments to support the growth of its global chemicals business. The group based in the Netherlands and the UK is already involved in other downstream activities in Saudi Arabia, among other things a crude oil refinery with Saudi Aramco in Jubail.

In 2014, SABIC and Shell canceled plans to expand SADAF as feasibility studies did not produce encouraging results. The expansion would have added production of polyols, propylene oxide and styrene monomer.

Last week, sources told the news agency Reuters reported that SABIC was in talks with banks to raise as much as $2 billion in loans. They said the loans could be transferred to Saudi Kayan Petrochemicals Co., in which SABIC holds a 35%. It is as yet unclear whether the loans are connected to the agreement with Shell. The Saudi group faces a challenging year in 2017 and needs to focus on improving efficiency, CEO Yousef al Benyan said in autumn of last year.