Exclusive: Aramco Trading plans to absorb Motiva Trading ahead of possible IPO

© Reuters. FILE PHOTO: A view shows branded oil tanks at Saudi Aramco oil facility in Abqaiq, Saudi Arabia October 12, 2019. REUTERS/Maxim Shemetov

By Julia Payne

LONDON (Reuters) - Saudi Aramco (TADAWUL:2222) is planning to merge two energy trading units, people familiar with the matter said, with Aramco Trading Co (ATC) due to absorb Motiva Trading ahead of a potential initial public offering of the business.

The move to combine the businesses is expected to give potential investors a better sense of the scale of Aramco's trading and would also allow the state oil producer to simplify financial reporting and cut duplication.

The restructuring is likely to be announced before the end of the year, one of the two people familiar with the matter said. The merger would come four years after Shell (LON:RDSa) Plc exited Motiva Enterprises, leaving Aramco in control of Motiva Trading and Motiva's refinery, the largest in the United States.

Saudi Aramco and other Middle East producers accelerated their trading efforts as a way to boost incomes after the 2014 collapse in oil prices. They have slowly gained market share from oil majors and Swiss commodity merchants, using access to their own feedstocks and strength in refining to compete aggressively.

Plans for the combination come amid reports Aramco plans an initial public offering of its trading business and as European countries move away from buying Russian crude over its invasion of Ukraine. The two people familiar with the situation, who are not authorized to speak to reporters, did not confirm plans for an IPO.

Motiva and Saudi Aramco spokespeople declined to comment, while ATC did not immediately respond to requests for a comment.

Saudi Arabia's state oil monopoly, Saudi Aramco, is the world's top oil producer. It plans to increase output capacity to 13.4 million barrels per day by 2027 from 12.4 million currently and from May's actual 10.5 million bpd.

Aramco's share of U.S. oil imports has declined in recent decades as it turned more to Asia and as U.S. shale output grew. However, refiner Motiva remains an important outlet for Saudi crude and its entry point into the world's biggest oil consuming market.

It was not immediately clear which of the two businesses' executives would be put in charge of the merged operation. Aramco's listing plans are part of a wider Saudi 2030 vision which encourages extracting maximum value from traditional fossil fuel industries to help diversify the economy.

ATC was set up in Dhahran in 2012 and has offices in London, Singapore and the United Arab Emirates. It began by marketing refined products and petrochemicals and later expanded into crude trading that fed ventures such as Motiva and S-Oil in South Korea.

ATC is a top blender in the Arabian Gulf and India and the largest charterer of refined products in the Middle East, according to its LinkedIn profile. The bulk of ATC's traded crude belongs to third parties – Kuwaiti and UAE crudes with some Guyana and indirectly, Iraqi Basra.

Motiva Trading trades crude oil, feedstocks, refined products and bio-fuels, managing transactions covering 2.8 million barrels per day, according to its website.

Competition between Saudi Arabia and Russia in European and Asian markets has been heating up in recent years even as the two major producers cooperated under the OPEC+ production-limiting deal.

Since the start of the year, ATC and its parent company have signed at least two crude supply deals in northern Europe.

ATC agreed to exclusively supply Klesch Group's Kalundborg refinery in Denmark and in Poland, Aramco bought refining assets and agreed to supply the country's top refiner.