Shell’s early exit from SADAF due to differing views on how to run it – CEO

LONDON (ICIS)–Shell’s early exit from 50:50 petrochemical joint venture SADAF with Saudi Arabia’s SABIC occurred after the two companies had differing views on how to take the enterprise forward, the CEO of the Anglo-Dutch energy major said on Thursday.

Ben van Beurden added the early exit – the joint venture was due to expire in 2020 – was prompted by a business-logical reason, rather than politics, as sources had suggested in January arguing the Saudi government was keen to expand its national oil major Saudi Aramco’s influence in downstream sectors.

Shell and SABIC announced on 22 January the former was to cash in $820m after an agreement to sell its 50% stake to its joint venture partner.

“We looked at opportunities to grow that position [at the joint venture]. When I run then chemical business [at Shell] I worked a lot with SABIC’s CEO to understand how we could use this position,” said Van Beurden.

“We worked hard [but] in the end the strategic rationale wasn’t strong enough, the availability of feedstock wasn’t there either, so we had to decide what to do [with our 50% stake]. I think SABIC had certain ideas and we had our ideas so we thought it would be better to bring forward the termination date.”

Asked whether the Saudi government had encouraged the divestment, Shell’s CEO said there had not been any encouragement “one way or the other”, although he avoided to answer if the company’s remaining assets in Saudi Arabia were also candidates for divestments, as the company seeks to reduce debt.

On 23 January, a spokesperson for Shell said to ICIS that the company is seeking $30bn in divestments within three years, and SADAF’s exit was part of that strategy, adding, however, that chemicals remained a “growth engine” for Shell.

“Sometimes you end up in positions like this [SADAF] that, as you near the end of the venture, the other partner has a different outlook for what they think they need to invest [in the facilities],” concluded Van Beurden.

“[Was there] Government encouragement one way or the other? No. There was strictly a business logical reason for doing it.”

Shell’s CEO was speaking in London on Thursday following the publication of Shell’s annual financial results for 2016.

Pictured above: SADAF’s facilities in Saudi Arabia
Source: Shell