Aramco to sell oil pipeline stake in US$12.4 billion deal
Consortium led by EIG signs 25-year lease and lease-back agreement
21 Apr 2021 | Michael Marray

Tapping into the strong institutional demand for infrastructure, Saudi Aramco has agreed to sell a minority stake in its crude oil pipeline network to a consortium led by EIG Global Energy Partners in a US$12.4 billion deal. Under the deal, the EIG consortium will acquire a 49% equity stake in Aramco Oil Pipelines Company, a newly formed entity with rights to 25 years of tariff payments for oil transported through Aramco’s stabilized crude oil pipeline network.

Aramco will hold the remaining 51% stake in Aramco Oil Pipelines, indicating the company has total equity value of approximately US$25.3 billion.

Washington, DC-based EIG is a leading institutional investor in the global energy sector and one of the world’s leading infrastructure investors. Thus far EIG has not given details of other participants in the consortium, but press reports suggest that there will be involvement from United Arab Emirates funds, Chinese investors, and pension funds.  

The pipeline network, which includes all of Aramco’s existing and future stabilized crude pipelines in Saudi Arabia, connects oilfields to downstream networks.  The network transports 100% of Aramco’s crude oil produced in the kingdom under its concession agreement.

As part of the lease and lease-back agreement, Aramco will lease the usage rights for the pipelines to Aramco Oil Pipelines, and Aramco Oil Pipelines will grant back to Aramco the exclusive right to use, transport through, operate and maintain the pipeline network for 25 years in exchange for a quarterly, volume-based tariff payable by Aramco.

The tariff will be backed by minimum volume commitments.  Aramco will at all times retain title to, and operational control of, the pipeline network and will assume all operating and capital expense risk. The transaction will not impose any restrictions on Aramco’s actual crude oil production volumes that are subject to production decisions issued by the kingdom.

HSBC Bank acted as financial adviser to EIG in the deal while Latham & Watkins served as EIG’s legal adviser. The transaction is expected to close as soon as practicable, subject to customary closing conditions, including regulatory approvals.

The transaction is similar to the two deals closed in 2019 and 2020 by Aramco's regional competitor Abu Dhabi National Oil Company (ADNOC), involving its oil and gas pipeline networks.  As with the ADNOC gas pipelines, bank debt is expected to be subsequently refinanced in the bond markets.

R. Blair Thomas, EIG's chairman and chief executive officer, says: “This is an extraordinary opportunity for EIG’s investors, and we are proud to partner with Aramco in this marquee global infrastructure asset. This transaction aligns perfectly with EIG’s philosophy of investing in high-quality assets with contracted cash flows in critical infrastructure.  We look forward to a long-term partnership with Aramco and to delivering value for our investors through this landmark investment.”

Aramco president and CEO Amin H. Nasser notes: “This landmark transaction defines the way forward for our portfolio optimization programme. We are capitalizing on new opportunities that also align strategically with the kingdom’s recently-launched Shareek programme. Aramco’s strong capital structure will be further enhanced with this deal, which in turn will help maximize returns for our shareholders. Additionally, our long-term partners in this venture will benefit from investment in one of the world’s most impressive energy infrastructures. Moving forward, we will continue to explore opportunities that underpin our strategy of long-term value creation.”

EIG has US$22 billion under management as of December 2020. During its 39-year history, the group has committed over US$34.9 billion to the energy sector through more than 365 projects or companies in 36 countries. Its clients include many of the leading pension plans, insurance companies, endowments, foundations and sovereign wealth funds in the United States, Asia and Europe. 

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