A group led by BlackRock Inc. will invest $15.5 billion in Saudi Arabia’s natural-gas pipelines as the kingdom looks to boost production of the fuel and open up more to foreign companies.
The consortium will buy a 49% stake in a new entity that holds 20-year leasing rights over pipelines carrying Saudi Aramco’s gas across the country. Hassana Investment Co., controlled by the Saudi government’s pension fund, will head the group alongside BlackRock Real Assets.
The deal, announced by Aramco on Monday, is part of Saudi Arabia’s drive to sell assets and use the money to fund new industries from artificial intelligence to electric vehicles, while also increasing output of both oil and gas. In a similarly-structured transaction in April, Aramco sold a $12.4 billion stake related to its oil pipelines to investors including Washington-based EIG.
Bloomberg reported last month that BlackRock was among the firms that bid for the gas pipelines. Others included EIG, Italian infrastructure firm Snam SpA and China’s state-backed Silk Road Fund Co.
Other investors may later join the consortium alongside BlackRock and Hassana.
Aramco, the world’s biggest energy company, is also considering allowing foreign investment in its gas fields. Saudi Arabia has said it will spend around $100 billion to increase output, including at the giant Jafurah field. That’s in addition to Aramco’s plan to spend billions of dollars to raise daily crude-production capacity to 13 million barrels by 2027 from 12 million.
The new subsidiary, Aramco Gas Pipelines Co., will receive a tariff for flows through the network. Aramco, which is guaranteeing certain levels of throughput, will retain a 51% stake in the unit.
Aramco said the deal will strengthen its balance sheet. The firm’s debt levels soared last year after it took control of chemicals maker Sabic for $69 billion and oil demand crashed with the onset of the coronavirus pandemic.
Its financial position has recovered this year thanks to a bounce in oil prices. Free cash flow rose to almost $29 billion in the third quarter, covering its quarterly dividend of $18.75 billion, which is the world’s largest. Still, its gearing ratio, a measure of net debt to equity, stood at 17.2%, above management’s preferred cap of 15%.