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Wed 24 Mar 2010 03:16 PM

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Aramco, Total to raise refinery financing in 'months'

Energy firms expect to raise $8bn in debt financing for a joint refinery & pertchem project.

Saudi Aramco, the world’s largest state-owned oil company, and Total expect to raise $8bn in debt financing for a joint refinery and petrochemical project in the “coming months,” the venture’s chief said. The 400,000 barrel-a-day refinery in Jubail on Saudi Arabia’s Persian Gulf coast will cost more than $12 billion, Salem Shaheen, chief executive officer of Saudi Aramco Total Refining and Petrochemical Co., said at a World Refining Association conference in Abu Dhabi on Wednesday.

The cost, including financing expenses, will also be funded by Saudi Arabia, which will contribute more than $1 billion to the project and by the partners’ equity, he said. The $8 billion debt package includes the sale of Islamic bonds, or sukuk, Shaheen said.

The project, known as Satorp, is expected to start operation in mid-2013. Aramco and Total will buy most of the products from the complex and there’s a “high possibility” most will be sold domestically, he said.

Aramco and state-run Abu Dhabi Oil Refinery Co., known as Takreer, are among Middle Eastern crude producers boosting refining capacity to meet demand at home. Saudi Arabia, holder of the world’s largest oil reserves and the biggest producer in the 12-member Organization of Petroleum Exporting Countries, imports refined products such as gasoline because it lacks capacity to meet domestic demand.

Aramco is investing in refining capacity even though returns are now poor, Chief Executive Officer Khalid al-Falih said at the World Economic Forum in Davos in January. Refiners worldwide have postponed expansion projects and idled plants as the global recession eroded demand and squeezed profit margins.

The company is likely to develop integrated refining and petrochemical plants for all future projects to add value by using products from refining for chemical production, Shaheen said.

Aramco may sell part of its stake in the project in an initial public offering in 2011 or 2012, so that 25 percent of Satorp will be publicly traded, Shaheen said. Aramco and Total would then hold equal 37.5 percent stakes, he said.

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