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SAUDI ARABIA - The Private Placements.

Private Saudi businesses have built up an impressive overseas presence, ranging from the upstream end to oil refining and distribution. They are linked to the Saudi royal family in one way or another. Their downstream acquisitions abroad are seen as a backdoor way for Saudi oil and refined products to penetrate markets where Saudi Aramco has no presence, such as South America, Central Asia and Russia.

Saudi businessmen are generally cautious in their approach; and deals with foreign partners are reached without publicity. The main private operators involved in overseas upstream and downstream activities are the following:

Nimir Petroleum Co. Ltd (NPC): Nimir is incorporated in Bermuda and is involved in petroleum projects in Azerbaijan, Colombia, Indonesia, Oman, Kazakhstan, Russia, Tunisia, Venezuela and Yemen. Established in August 1991, it has rapidly built up branches registered in Bermuda, the Cayman Islands, Cyprus, Russia and the US. Nimir's owners are the Bin Mahfouz family of Jeddah, a well connected clan in Saudi Arabia, which originates from Hadhramaut in Yemen. It has an array of businesses inside and outside the kingdom. This family used to be referred to as the banker of the Saudi royals, because it used to control the National Commercial Bank (NCB), the largest bank in Saudi Arabia. But in May 1999 the state acquired 50% of NCB, removing from control the bank's chairman and CEO Khalid Bin Mahfouz.

Nimir, in Arabic meaning "tiger", was founded by Abdel Rahman and Sultan Bin Mahfouz. Khalid Bin Mahfouz is said to be overseeing its operations. The President and CEO of Nimir is Dr. Abdullah Mohammed Basodan, who originates from Hadhramaut and was previously in Saudi Aramco's planning department and an advisor to the oil ministry. Basodan is also a member of the board of Capital Investment Holdings of Bahrain, a firm controlled and chaired by Khalid Bin Mahfouz. Saudi Defence Minister Prince Sultan Ibn Abdel Aziz and his younger full-brother Prince Salman (emir of Riyadh) are said to have a stake in Nimir.

Operating and service companies in NPC include Nimir Petroleum Co. Europe Ltd. (NPCEL), Nimir Petroleum Co. USA Inc (NPC USA), Hocol (for Latin American operations) and Nimir Energy Services Ltd. (NESL). NPCEL, registered in Bermuda, identifies business opportunities for NPC.

NPCEL is based in Paris. NPC USA Inc. operates out of Dallas. Its job is to manage procurement and shipment of materials to NPC operations on Russia's Far Eastern island of Sakhalin and in Colombia. It provides administrative and human resource services to Petrosakh Joint Stock Co., another Nimir unit registered in Russia. NESL provides specialised services to NPC, including project management and support for technical, financial, accounting, legal, IT, risk management, and administrative needs. NESL, incorporated in Bermuda in 1991, operates out of London.

Nimir's activities cover the following countries:

-Yemen. Nimir's first move overseas was in September 1991 when it reached a production sharing agreement (PSA) with Yemen's oil ministry to develop West Ayad (Block 4) in Shabwa province. NPC won that concession after beating out more than a dozen international companies interested in the block, for a reported price of $500m - though the actual amount paid was less than that. NPC later got Arco to handle technical operations. In March 1992, NPC signed PSAs for Al Furt (Block 33), Qamar Gulf (Block 16) and South Sanau (Block 29). Block 16 is in Al Mahrah province bordering Oman and covers an 8,544 sq km area. Blocks 33 and 29 are in Hadhramaut and cover 7,500 sq km and 12,634 sq km. NPC also funded a partial modernisation of Aden's 170,000 b/d oil refinery. It leased a gas-oil separation plant (GOSP) in order to begin production at Shabwa in time for a target set by Sanaa, and invited foreign engineering firms to repair the production facility at East Ayad, which had been installed by Technoexport of the former Soviet Union. But Ayad's oil production has fallen to a negligible volume (see detailed survey of Yemen & who's who to be serialised in 2004).

-Russia. NPC entered Russia in October 1992 when Nimir Petroleum Petrosakh Ltd. (NPPL) acquired from Petrosakh Ltd. a 50% share in a Russian JV company which had operations in the Okruzhnoye field, in the Pogranichi Basin of Sakhalin island. Thus Petrosakh Joint Stock Co. (PJSC) was formed. PJSC commissioned its 5,000 b/d refinery on the island in April 1994. The output of the refinery is fuel oil (36%), gasoline (35%), diesel (20%) and kerosine (9%). In May 1995, NPPL raised its stake in PJSC to 95%. In 1996 new development and exploration wells were drilled and building work was completed on a marine terminal. PJSC activities involve oil gathering and separation, oil production, dehydration, gas compression and gas injection. It has built a tank farm for crude and refined products. It also has an arctic camp supporting year-round operations. Exports are sent through the Okruzhnoye terminal during the summer and via the Korsakov port in the winter. Products for consumption on the island are transported via road and rail. PJSC also does seismic and geological surveys to explore for new oilfields. PJSC meets 25% of the island's consumption needs and employs about 95% of its staff of some 500 people from among the Sakhalin islanders. NPC has invested more than $130m in Sakhalin.

-Azerbaijan. NPC has a stake in Azerbaijan International Oil Consortium (AIOC), consisting of a 50% share in a JV with Delta Oil Co. (another private Saudi group, see following pages), called Delta Nimir Khazar Ltd (DNKL). DNKL, established in 1994, has 1.68% in AIOC. DNKL is also a member of the North Absheron Operating Co. (NAOC) consortium, formed to develop the Ashrafi and Dan Ulduzu fields in the North Absheron ridge. In March 1997, Baku's parliament approved the contract on Ashrafi and Dan Ulduzu fields. The contract had been signed in December 1996 by Azeri state oil company SOCAR and Amoco (now part of BP), Unocal, Itochu and DNKL. The shares are: BP Amoco (30%), Unocal (25.5%), SOCAR (20%), Itochu (20%) and DNKL (4.5%).

-Colombia. NPC entered Colombia in November 1995 by purchasing all Hocol and Homcol shares from Shell. In May 1996, it began production of gas at the Montanuelo field. Hocol, now producing 45,000 b/d, operates a total of 16 blocks in Colombia mostly focused on the Upper Magdalena valley. It has made several discoveries in the past two years. Hocol has a 36% share in the Oleoducto Alto Magdalene pipeline which carries crude oil produced in the Upper Magdalena fields, and a 21% share in Oleoducto de Colombia (ODC) which transports Upper Magdalena oil as well as Central Llanos oil from Vasconia to the Covenas terminal. In addition, Hocol administers the 480-km ODC, which lies underground and includes sub-surface river crossings. About 35% of Hocol-produced crude oil is sent through the ODC for export, while 65% is shipped via pipeline to Ecopetrol's Barrancabermeja refinery.

-Venezuela. NPC, through Hocol which now is in charge of Nimir's Latin American E&P operations, made its entry into Venezuela on June 3, 1997 in a partnership with Pennzoil (Pepco). On that date a Pennzoil-led group won a $46m contract to operate the B2X-68/79 field. The shareholding in the group is as follows: Pennzoil (60%), Hocol (NPC - 20%), Ehcopek SA (10%) and Cartera de Inversiones Venezolanas CA (10%). The field is in eastern Lake Maracaibo. B2X-68/79 covers 10,000 acres. It had 39 active wells producing about 2,500 b/d. The minimum investment required during the first three years on B2X-68/79 was $12m. Now Hocol operates two blocks in Venezuela's Lake Maracaibo, and is looking for new opportunities elsewhere in Latin America.

-Oman. NPC was awarded Block 3 in Oman in January 1997. Under the deal, it was to invest $50.5m over an eight-year period. The block spans an area of 15,000 sq km in north-east Oman.

-Tunisia. On May 5, 1997, NPC and Petronas Carigali, Malaysia's NOC, got rights to explore the 7th November concession in a Gulf of Gabes area jointly administered by Libya and Tunisia. The rights were awarded by Libya/Tunisa Joint Oil. The block spans a 3,000 square km area. The 7th November field is estimated to have 260-300m barrels of recoverable reserves. NPC and Petronas had to invest $30m over a five-year period. They were to drill up to five wells. NPC is the operator and holds 55%.

-Kazakhstan. In June 1997, NPC signed a 25-year deal to develop the North Buzachi field which, according to Nimir, has 1.5 bn barrels of oil in place and recoverable reserves of 500m barrels of 20o API crude. NPC was to invest $103.5m over a five-year period, with $30m in the first three years and $73.5m in the remaining two years. It was to drill three wells, applying steam injection or horizontal drilling, and start production by end-1997. It had a production target of 80,000 b/d, but this was not attained. North Buzachi lies next to the giant Kalakmas field on the main export route to Russia.

NPC has negotiated a 150,000 b/d complex refinery project in East Java as JV with P.T. Gigaraya International of Indonesia and Mitsui of Japan. This was to get crude oil from Saudi Arabia. NPC has held talks on downstream ventures in Ukraine and Moldova. In 1993 it was among firms negotiating with Elf Aquitaine on a new refinery at Leuna in east Germany. NPC joined Shell in Block 10 in Romania in 1992 but pulled out later that year after disappointing results. It left Malta in 1996 for similar reasons, after prospecting with Shell in Block 7 of the southern offshore region.

Corral Petroleum Holdings (CPH) is a Swedish-registered firm owned by Mohamed Hussein Al Amoudi, of a Jeddah-based merchant clan. CPH in the first quarter of 1999 assumed control over the refining and retail businesses in Morocco. This was done through a merger of the country's two refining firms in which CPH had held the majority since May 1997: Socit Anonyme Marocaine de l'Industrie de Raffinage (Samir) and Socit Chrifinne de Petroles (SCP). The smaller refinery, at Sidi Kacem, has a nameplate capacity of 1.5m t/y. Samir's refinery has a capacity of 6.25m t/y.

CPH's local unit, Corral Holdings Morocco (CHM) merged Samir and SCP so that their resources were pooled together to gain economies of scale and help CHM prepare a $700m programme for expansion. This was to include an upgrade of the two refineries, as gasoline and gasoil specifications in Morocco were to be changed by 2003. CHM was to increase their retail networks in a single system. The project was to upgrade and raise Samir's capacity from 6.25m to 8.25m t/y by 2005, with high quality gasoil/diesel to exceed 55% and that of fuel oil to fall below 15% (down from 33%) of production. Foster Wheeler made the FEED and was the PMC.

However, Samir's refinery was badly damaged by floods and fire in late November 2002. MCE Voest of Austria was contracted subsequently to assess the damage in 2003. As a result, the $700m has since been delayed and the suspension of refinery operations has caused Morocco to import products to meet its requirements. CHM holds a 67.33% equity in Samir.

CHM's 1,500 service stations throughout Morocco were also to be improved under a separate project. Having a monopoly on the local refining industry in Morocco, CHM was aiming to meet all the country's mogas and distillate requirements by 2010. CHM has been getting is crude oil needs from Saudi Aramco, Iraq, Iran and the spot market.

CHM's LPG retail network in Morocco has been expanded through a merger agreed in October 1998 with Tayssir Primagaz, Azizgaz, and Elf Intergaz (Elf now is part of Total). The merged entity has 85% of the LPG market and has invested in new plant and equipment for gas bottling centres to meet the growth in local demand. Previously CHM had 10 LPG filling units accounting for 40% of the filling sector but only 5% of the LPG market.

Corral's first move was on March 16, 1994, when it acquired Stockholm-based OK Petroleum AB (OKP) for $738m. In July 1994 OKP bought Sweden's 400 Texaco petrol stations, representing a 7% share of the market. The total deal was worth around $1.2 bn. Since mid-1996, OKP has been renamed Preem Petroleum. (Nimir had initially wanted to buy OKP but decided against it. Then Al Amoudi hired Nimir as a PMC prior to buying OKP. Nimir undertook the negotiation and acquisition of OKP, on behalf of Corral. Later Nimir got a PMC contract from Preem). Preem is the biggest refiner in Scandinavia with a capacity of 300,000 b/d, in two refineries: the 200,000 b/d Scanraff plant, jointly owned with Norsk Hydro, and the 100,000 b/d Preem refinery. A $200m upgrade at the latter refinery was completed in 2002. Preem Petroleum has extensive storage facilities. Preem has E&P concessions in three North Sea fields, in the Baltic and in Angola. In January 1995 it bought Polish oil company Va-Po, which has a storage farm in Poznan and 20 retail outlets. Now Corral owns some 500 retail outlets under the Preem brand name. Corral also owns Svenska Petroleum and Exploration, which produces 15,000-18,000 b/d of crude oil and has annual sales of around $160m.

In mid-1995 Corral teamed up with Dubai-based Gulf Interstate to take a 15% share in oil retailer Fortuna of Lebanon, at a cost of $50m. Corral's share has since been raised to 70% and Gulf Interstate is out. Fortuna has two units: Coral Oil and Speed Oil operating 150 retail outlets in Lebanon. Amoudi has bought from the Saudi firm Al Mawarid Naft Services Co. which has the largest chain of petrol stations in the kingdom. Its stations are concentrated around Jeddah, Riyadh and Al Khobar.

Delta Oil Co., based in Jeddah, is part of Delta Investment Co. which groups about 50 prominent Saudi businessmen. Delta Oil was set up in 1993 to manage the group's energy interests. In 1994 it formed a "strategic partnership" with Nimir. Through this it has joined the AIOC and NAOC consortia in Azerbaijan (see Nimir profile). Delta Oil has been involved in repeatedly frustrated efforts to build a gas pipeline from Turkmenistan to Pakistan via Afghanistan. It has worked on this with Unocal of the US. Delta executives personally negotiated with Taliban leaders to get their backing for the project. Delta Oil's Chairman and CEO is Badr M. Ayban, who used to be a consultant in the Saudi state oil sector. His deputy is Nabil Al Khowaiter, who used to be with Aramco. Ray Harlow, previously head of Sun Oil Int'l, has been a key executive in Delta since September 1997. Delta had applied in 1992 for a licence to operate under the name of Arabian Petroleum Co. as a joint stock venture, which would have helped raise finance for its intended purchase of 50% in the downstream network of Belgian company Fina in the US. But Riyadh blocked the move in 1993.

In early 1999, Delta Oil acquired 26% in Centurion Energy Int'l of Canada. It bought $3m of shares in a private placement and paid $3.8m of an existing debenture. Centurion is active in oil exploration in Tunisia and Egypt. It has three concessions in Tunisia which produce 3,200 b/d.

Other Saudi companies involved overseas include the Dallah Al Barakah Group. One of the Saudi corporate giants, this Jeddah-based group is controlled by leading businessman Shaikh Saleh Al Kamel. His group has considered E&P deals in Kazakhstan and Uzbekistan for several oilfields. In November 1991 it opened a JV bank in Almaty to focus on oil and gas projects. The bank reportedly had about $150m in authorised capital, with Dallah holding 50%. In 1993, it disclosed plans for a refinery service venture in Moscow.

A little known Saudi firm, Ningharco, is part of a group led by Bridas of Argentina to build a Turkmenistan-Afghanistan-Pakistan gas pipeline rivalling that of Unocal-Delta. Arab Group International (AGI), based in Riyadh and headed by Prince Sultan Ibn Saud Ibn Abdullah Al Saud, had in 1995 agreed to take a 50% stake worth $345m in Arakis Energy of Canada, which had acreages in Sudan. AGI said is was ready to provide $405m to fund development of oilfields in central Sudan. The project's viability was questioned because it was located in a civil war zone.

In early 1998, Mobil and Alireza were reported to be planning to invest over $200m in converting a Panamanian bunkering centre into a hub supplying fuels to Latin America. In March 2003 Saudi tycoon Mohamed Bin Issa Al Jaber was negotiating to buy Phillip Holzmann's profitable US unit JA Jones for about $500m (see background in Vol. 54, No. 19).
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Publication:APS Review Gas Market Trends
Geographic Code:7SAUD
Date:Oct 20, 2003
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