A 44.4 per cent plunge in FY20 net profit of Saudi Arabia’s state-owned energy giant Saudi Aramco and a slash in capex this year could make it harder to finalise a deal to invest in the oil to chemicals business of Reliance Industries Ltd. In August 2019, RIL said it had signed a non-binding letter of intent with Aramco to sell a 20 per cent stake in the oil to chemicals business of Reliance Industries for as much as ₹1.03 lakh crore or roughly $15 billion.

The deal with Reliance Industries, if and when finalised, will allow Aramco to supply up to 700 (KBPD) or 5,00,000 barrels per day of crude oil on a long-term basis to Jamnagar refinery. But, one year later, RIL Chairman Mukesh Ambani said at the firm’s annual general meeting in July 2020 that the deal with Aramco “has not progressed as per the original deadline”.

Covid impact

As the coronavirus pandemic pulled down oil demand globally, Aramco said on Sunday that its net income fell sharply to $49 billion in FY20 from $88.2 billion in FY19. In February, Reliance Industries unveiled the broad contours of the O2C re-organisation plan by carving out its refining, marketing and petrochemicals business into Reliance O2C Ltd, a wholly-owned unit.

The proposed reorganisation is expected to ease the formation of strategic partnerships and stake sales to potential investors focussed on investments in oil-to-chemicals businesses. “RIL has been in ongoing discussions with Aramco to sell a minority stake in its oil-to-chemicals businesses, which, if successful, should lead to further deleveraging of RIL,” Fitch Ratings said in a note in February.

Low oil prices and weak demand led Aramco to stay away from participating in the privatisation of Bharat Petroleum Corporation Ltd (BPCL) despite forecasts on oil demand growth in the world’s third largest oil importer and consumer.

Around 86 per cent of Indian oil imports last year were from the organisation of the petroleum exporting countries (OPEC) and its allies, a group known as OPEC+, that is dominated by Saudi Arabia and Russia with Saudi Arabia alone accounting for 19 per cent of the supplies, according to government data.

Saudi Aramco has been eyeing stakes in refining ventures overseas to guarantee new outlets for its crude oil. It has separately agreed to invest in a planned 60-mt refinery and petrochemicals complex in Maharashtra along with Abu Dhabi National Oil Company (ADNOC) and India’s state-run oil refiners such as Indian Oil, Hindustan Petroleumand BPCL. But, this has not made much headway due to problems associated with land acquisition for the project.

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