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INTERVIEW: President and CEO, Saudi Aramco Total Refining and Petrochemical Company (SATORP)
03/12/09Salem Shaheen, President and CEO, Saudi Aramco Total Refining and Petrochemical Company (SATORP) speaks to the WRA
Interview
WRA: What has been the biggest challenge in trying to secure financing for the Jubail Export Refinery project?
SATORP: In this case, we were afraid of the capital markets going dry; however, what we found was that this was not the case. At present, with many projects slowing down or stopping altogether, there is less competition for the same capital. In addition, both Aramco and Total are trustworthy companies with strong reputations which put lenders at ease. We are confident that we will obtain the necessary financing to move forward. The biggest challenge that we are facing is time and manpower with such a complex project involving the collaboration of the project team, consultants, lenders, and contractors – a huge effort by all.
WRA: You were able to cut your costs by about 20 per cent by delaying the project to capitalise on lower construction costs, which appears to be a growing trend in the Middle East project sector. What impact will this have on the development of the project?
SATORP: We actually cut our costs by more than 20 per cent and this will have positive impact by reducing our CAPEX and improving our IRR.
WRA: So what impact will the delayed EPC contracting selection have on the project?
SATORP: It is important to realise that there are two main factors impacting the development of any project – time and cost, which are working together. When there is a lot of tension, costs are increasing and the schedule is delayed. When the costs are down, there is more room to relax the schedule a bit. In our case, we will in the worst case scenario be on schedule. Two years ago, we would have said that at best we would be on schedule.
WRA: What has changed within the last two years?
SATORP: We have developed a revised schedule with the first order going in March 2013, originally scheduled for December 2012, just one quarter behind. The previous schedule has been delayed due to the longer EPC selection process but this has been reduced to just a 3 month delay. In the end, the cost of the delay in terms of operating margin will be much more than offset by our total cost savings.
There are two key benefits of us holding off on awarding the contracts. The first and most obvious being better profitability due to lower Capex. In addition, the financing is easier to borrow as we are borrowing less money and the market is not over heated. Finally, the debt to equity ratio is more favourable, which improves the sponsors’ financial ratios..
WRA: Where will the Jubail refinery products be sold?
SATORP: The market for gasoline will stay in the Kingdom or the Middle East in general. A minor share, if any, will go to Asia and North America. Our jet diesel will go to Asia and Europe, although it could stay in the Kingdom. This is not clear at present. Paraxylene will go to Asia. PET could potentially be manufactured in Jubail and in just a few years time (at most 5 years) have one customer in the region which it will supply before export. Benzene/propylene will be sold by SATORP to its neighbours; however, the contracts have not been signed yet. LPG will be exported to Asia and sulphur will be sold globally. As Aramco is a key player in this business, it puts SATORP at ease. Finally, petroleum coke will be exported to Asia and used in the Middle East with a view to it being consumed in the Kingdom in the future.
WRA: What were the key drivers in moving forward with developing an integrated facility?
SATORP: There are five key factors when considering integration, petrochemical integration being just one aspect of the equation. The first is lower CAPEX of running one unit as opposed to a separate refinery and petrochemicals complex. The second is saving on OPEX. The third driver involves more flexibility for the gasoline section of production in addition to aromatics production. The fourth driver is the ability of the refinery to cope with future gasoline specifications. The fifth driver is that is it easier to include an aromatics complex, for example, in the initial construction phase as opposed to expanding upon something existing, which is more complex.
WRA: What individual strengths are Total and Aramco bringing to this project?
SATORP: The main strength that Aramco brings is its relationship with the Saudi government, which has eased every step of the process to date. The second benefit is its knowledge of implementing mega projects in the Kingdom, which in a way is part of their culture (building large billion dollar projects). Finally the most obvious benefit is its reputation and hydrocarbons reserves.
The main strength that Total brings is good capacities and design, good operations in general, technical and general capacities, conceptual capacities, experience in refining operations, and capacities in trading products.
Finally, as Total is a fully internationally integrated company, it perfectly complements Aramco’s strong position in the region.
It is also important to note that both sides bring relationships with key partners, some shared and some unique.
A small point to note is that the two cultures (French and Saudi Arabian) complement each other very well which opens the door for future possibilities and add to the overall strength of SATORP.
WRA: What is your vision for SATORP?
SATORP: The main vision for us, with the support of our board members and shareholders, is to establish a joint venture company which is the best in class, and to set a benchmark for the creation of JVs. We want to combine efficient systems, operations and added value to our owners, meeting fully the objectives of the joint venture’s mission. In addition, we have a vision to establish future partnerships between Aramco and Total and to build upon the Jubail Refinery project, our efficiency and trust.
* END OF INTERVIEW *
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