Saudi Aramco to spend $2bn on becoming majority owner of South Korean refiner

Saudi Aramco is to increase its stake in the Korean refiner S-Oil with an additional $2 billion investment, according to reports.

Saudi Aramco bought a 35 per cent stake in S-Oil in 1992.Seokyong Lee / Bloomberg News

Saudi Aramco has agreed to spend US$2 billion to become a majority owner of the South Korean refiner S-Oil, according to reports.

Aramco, which already holds 35 per cent of the Korean company, has struck a deal to buy nearly all of Hanjin Energy’s 28.4 per cent stake, Nasser Al Mahasher, the chief executive of S-Oil, told Korea’s Maeil Business Newspaper at the weekend. Hanjin is 96.6 per cent owned by Korean Air.

The deal consolidates Saudi Aramco’s position in South Korea, where it supplies nearly all of the more than 600,000 barrels per day of crude that S-Oil processes.

“There’s a continuing trend by the Gulf national oil companies to own more downstream mostly in Asia but of course in North America as well,” said Robin Mills, the head of consulting at Manaar Energy. “Part of it’s securing markets … There are advantages in setting up term contracts and having a consistent offtake of a certain grade of oil.”

Aramco did not respond to a request for comment.

The Saudi producer bought its current 35 per cent stake of S-Oil in 1992. Last year the company signed a 20-year agreement to supply oil to the refiner, an unusual agreement in a field where one-year terms are more common. Long-term deals are typically reserved for natural gas.

“Because of having the supply the gulf NOCs [national oil companies] can get into the downstream sectors of these countries which are normally protected,” said Mr. Mills. “If you were just a normal refining companies that didn’t have any crude supplies then you wouldn’t have a way in.”

Hanjin’s stake in S-Oil came on the market on December 19, when Korean Air said that it hoped to raise $3.2bn to cut debt through the sale of 30 million shares of the refiner.