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Sat 30 Mar 2019 09:28 AM

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Aramco and Sabic plan 'discovery phase' to unlock savings after merger

Aramco and Sabic announced the $69 billion deal last week

Aramco and Sabic plan 'discovery phase' to unlock savings after merger

Sabic’s chief executive officer said the chemical company’s $69 billion takeover by oil giant Saudi Aramco will yield cost savings for both sides -- it may just take a bit of time.

Once the deal gets antitrust approval, Aramco and Saudi Basic Industries Corp. will set up a team to work on the potential spending reductions, though it’s too early to give an estimate, CEO Yousef Al Benyan said in a phone interview. Proximity will help, as Aramco’s refineries are close to Sabic’s chemical plants in the port of Jubail, and savings are likely to increase over time as the partners pursue growth projects.

“I’m very optimistic on this,” Al Benyan said. “We need to go through a discovery phase to see what exactly are the synergies that will materialize and how can we bring them efficiently and commercially into Sabic.”

Aramco and Sabic announced the deal on March 27, confirming a shift of strategy after the government put off the oil company’s initial public offering. While large oil producers have moved in and out of chemical manufacturing over the years, the current trend is to create huge integrated players, such as the potential tie-up of Beijing-based Sinochem Group and China National Chemical Corp.

- Electric Cars - 

Concerns that the rise of electric vehicles and green energy will reduce demand for petroleum are spurring the move back into chemicals to take advantage of expanding markets for plastics derived from oil or natural gas. Any savings would reinforce the business case behind bringing the oil and chemical giants together at a time when an economic slowdown is taking its toll on prices for products such as plastics.

Al Benyan said prices have stabilized after a severe drop in November, though he expects them to remain below 2018 levels over the course of this year. Sabic, which will remain a listed company, will retain oversight over its operations including mergers and acquisitions.

Sabic was formed in the 1970s to make use of byproducts from refineries that would otherwise have gone to waste. Access to low-cost feedstock and a lock on supplying Saudi manufacturers meant the Riyadh-based company was relatively sheltered for a couple of decades. More recently, it’s had to fend for itself in global markets as Saudi Arabia let Aramco enter polyester-based chemicals and other local businesses like Tasnee grew.

After three years of cutting Sabic’s costs, Al Benyan said he’s focused on maintaining and expanding those efficiencies as the chemical arm of Aramco.

“Each business has its own requirements,” he said. “I’m confident that Sabic will continue in that way.”

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