Bloomberg.com: Saudis to Buy Up to 14.95% of Showa Shell's Shares (Update3)

Posted 6 July 04

July 5 (Bloomberg) -- Saudi Aramco, the state oil company of Saudi Arabia, agreed to buy as much as 14.95 percent of Royal Dutch/Shell Group's Japanese refiner, a stake valued at $503 million, seeking to ensure orders from Asia's second-biggest market for crude oil.

The world's biggest oil company by output will sell Showa Shell Sekiyu K.K. at least 300,000 barrels a day of crude oil, said HSBC Holdings Plc, which advised Aramco. It shipped 43 percent of its 6.5 million barrels a day of oil exports to the Far East last year, HSBC said.

The Middle East's biggest oil producer has invested in refining and chemicals ventures in South Korea, China and the Philippines. It's also considering a stake in Hindustan Petroleum Corp., India's second-largest state oil refiner, and may secure more Asian sales by participating in China's plan to build an oil stockpile by 2005.

``It definitely makes sense given the rising demand in Asia, which is the biggest growth story globally,'' said Dariusz Kowalczyk, senior investment strategist at CFC Securities Ltd., a Hong Kong unit of Switzerland-based CFC Group. ``The connection between the Middle East and Asia is becoming tighter and this is a trend that's likely to continue.''

Aramco owns 35 percent of S-Oil Corp., South Korea's third-largest oil refiner; and 40 percent of Petron Corp., the largest Philippine refiner. The Saudi company is in talks to take part in a $3 billion refining and chemicals project in China with Exxon Mobil Corp. and China Petroleum & Chemical Corp.

Buy Shares

Aramco will buy 9.96 percent of the shares in Showa Shell, Japan's fourth-largest refiner by production, from Shell in mid-August and may buy a further 4.99 percent stake by December 2005, Showa Shell spokesman Masami Yamashita said.

``Saudi Aramco has better crude supply strength,'' said Bianca Ruakere, a spokeswoman for Royal Dutch/Shell in London. ``They have the type of scale to move crude about and with that comes better flexibility and better supply relationships. Having a strategic partner like Saudi Aramco is very beneficial to Showa Shell.''

The Saudi producer reduced by as much as 13 percent below contractual levels its monthly shipments of crude oil to Nippon Oil Corp., Japan Energy and other customers in Japan, South Korea and Taiwan from November until April.

Japan imported more crude oil from the United Arab Emirates than Saudi Arabia in May, according to figures from Japan's trade ministry. Oil imports from the UAE rose 14 percent to 1.06 million barrels a day while Japan's oil imports from Saudi Arabia fell 12 percent to 880,000 barrels a day.

Japan

The Middle East accounted for 89 percent of Japan's 3.9 million barrels a day of crude oil imports in May, which fell 9.8 percent from a year ago.

``We welcome the security Aramco's oil reserves provides Showa Shell, although whether preferential pricing can be secured is doubtful,'' Yamashita said.

In 2002, Aramco said it's looking for more refining joint ventures in Asia to tap rising fuel demand and diversify away from pumping crude oil.

Saudi Arabia shipped 1.5 million barrels a day of crude oil to the U.S. last year, and 2.8 million barrels a day to the Far East. Europe received 600,000 barrels a day.

``Aramco considers Japan, with the U.S. and Southeast Asia, one of three key markets,'' the Showa Shell spokesman said.

Russia

Saudi Arabia is facing more competition as Russian and African oil producers boost output. Russia, which overtook Saudi Arabia as the world's largest oil producer in the first five months of this year, may build a pipeline to send Siberian oil to its Pacific port of Nakhodka and enable Japan to reduce dependence on supply from the Middle East.

Shell and Aramco were in talks since last autumn, the spokesman said. He wouldn't say what Aramco would pay for the stake worth 54.74 billion yen at today's closing share price. After the share sale is finalized next year, Shell's stake in Showa Shell will fall to 35.05 percent from 50 percent currently.

Showa Shell's shares, which have risen 10 percent this year, fell 13 yen, or 1.3 percent, to 971 yen at the 3 p.m. close of Tokyo trading.

To contact the reporters on this story:

Hector Forster in Tokyo at  hforster@bloomberg.net

And Sri Jegarajah in Singapore at  sjegarajah@bloomberg.net.

To contact the editor responsible for this story:

Reinie Booysen at  rbooysen@bloomberg.net.

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