Saudi business mulls U.S. shale venture in first foreign foray

By Abbas Al Lawati and Yousef Gamal El-Din on 1/30/2018

DUBAI (Bloomberg) -- Saudi International Petrochemical Co. is considering investing in the U.S. shale industry in what would be the company’s first foreign venture as it faces higher costs and a shortage of feedstock at home in Saudi Arabia.

Sipchem, as the business is known, may seek a U.S. partner in its effort to tap into the booming shale industry, though CEO Ahmad Al Ohali said in a Bloomberg television interview that he foresees risks in such an expansion.

“It’s not going to be easy because we don’t know the business landscape in the U.S., but definitely we are targeting hopefully to do something this year,” Al Ohali said. Sipchem would initially use cash to pay for the project instead of borrowing money, he said.

The surge in U.S. shale oil and gas output in recent years has slashed America’s reliance on imported energy, threatening the market share of the Organization of Petroleum Exporting Countries and the group’s biggest member, Saudi Arabia. OPEC’s Saudi-led drive to squeeze rival producers by opening the taps on supply led prices to plummet from more than $115/bbl in 2014. The effort failed to stop shale drillers. While OPEC and allied producers changed course and began cutting supply last year, prices haven’t risen much past $70.

'Limited growth'

Sipchem is seeking international opportunities amid “very limited” growth prospects in the kingdom due to a lack of feedstock for basic products, Al Ohali said. The Saudi government’s increase in feedstock prices two years ago was “a wakeup call for our industry,” he said.

The company, which has a market value of 6.9 billion riyals ($1.84 billion), reported a fourth quarter profit of 164.4 million riyals on revenue of 1.28 billion riyals, beating estimates. Its shares have gained 7.3% this month, compared with a 4.9% rise in the Tadawul benchmark All Share Index, and were little changed at 18.72 riyals in Riyadh at 11:55 a.m. local time.

Sipchem should benefit from a shortage of methanol in China, he said. “That’s going to make some imbalance in supply and demand globally despite the new capacity that came in the United States.”

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