Saudi Aramco Contractor Arkad Forms Oil, Gas Venture With ABB
(Bloomberg) -- Saudi energy services company Arkad, which is building a nationwide pipeline network for oil giant Saudi Aramco, will expand outside the kingdom in a venture with ABB Ltd. that opens the doors to business in North Africa and the Gulf region.
Arkad signed a deal to acquire a majority stake in a new joint venture with ABB's oil and gas engineering, procurement and construction unit, Managing Director Hani Abdelhadi said in an interview. The project will give closely held Arkad a foothold in Algeria, Kuwait and the United Arab Emirates, he said. Both Arkad and ABB declined to disclose the size of their respective stakes and the value of the transaction, which they target for completion in December.
"It has been our goal since the beginning to become an international company," Abdelhadi said in Dubai. "Through an acquisition, it's easier market access than trying to go and set up in each country."
Arkad is expanding at a time when energy-services companies worldwide are struggling to cope with lower crude prices, which have driven oil and natural gas producers to slash investment. Crude is currently trading at about half its 2014 peak, and Schlumberger Ltd. and Baker Hughes, the two largest oil service companies, have blamed lackluster earnings on the reluctance of North American explorers to boost their spending. The oilfield services business was the worst hit in the three-year crude-market crash.
For Zurich-based ABB, a provider of power and automation technologies, the deal promises new opportunities in Saudi Arabia, where Arkad's main customer is Saudi Aramco, the world's biggest crude exporter. "We see this as a clear growth opportunity," Per Erik Holsten, managing director of ABB's global oil, gas and chemicals business, said by phone from Oslo. ABB "wasn't getting enough scale" with its existing energy contracting operations, he said.
Arkad, based in the eastern Saudi city of Al Khobar, is currently building a gas pipeline system for Aramco that will span more than 1,100 kilometers (685 miles) from Saudi Arabia's Eastern Province to Rabigh on the Red Sea. The network is part of the country's Master Gas System that aims to supply gas as a replacement for the oil currently used to generate electricity, and also to send gas to petrochemical plants.
Arkad expects to generate 2 billion riyals ($533 million) in sales this year. Abdelhadi declined to give estimates for 2017 income or projections for future sales and income. Arkad, established in 2011 as Saudi KAD, was re-named in February.
The joint venture, to be called Arkad-ABB SpA, will be based in Milan at the headquarters of ABB's existing oil and gas EPC business. Abdelhadi and Holsten declined to identify any of the venture's clients.
Arkad's expansion aligns with Saudi Arabia's Vision 2030 plan of diversifying the economy and creating jobs through small and medium-sized businesses at home and abroad, Abdelhadi said. "We would carry the Saudi flag out of the kingdom."
--With assistance from Claudia Carpenter
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