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What The Restructuring Of Oil Giant Aramco Means For Keppel Corporation And Sembcorp Marine

Saudi Arabia is planning to restructure Saudi Aramco, the largest energy company globally. Aramco is the state-owned oil and gas company of Saudi Arabia. The company produces more than 10% of the global output in oil, and the planned restructuring could have a major impact on the future of oil and gas industry.

The main idea of the restructuring is to separate Aramco away from the petroleum ministry so that the company can be more commercially, rather than nationally-driven. At this point in time, it is still unclear how the restructuring will affect the industry as a whole. However, as the largest oil producing company globally, Aramco is dependent on the oil and gas support industry. In particular, both SembCorp Marine Ltd (SGX: S51) and Keppel Corporation Limited (SGX: BN4) counts Aramco as its customer.

In 2013, SembCorp Marine signed a Memorandum of Understanding (MoU) with Saudi Aramco to study the possibility for a maritime yard in Saudi Arabia. In the same year, Keppel Corp delivered several jackup rigs for Saudi Aramco.

What might happen?

With a more commercial objective in mind, Aramco might be more focused in boosting its production in oil rather than controlling its production for the benefit of OPEC in the past. If this is the case, the company might be more aggressive in its capital expenditure on production which means the possibility of larger volume of business for service providers such as Keppel Corp and SembCorp Marine.

Foolish Summary

Although it is unclear at present how the restructuring of Saudi Aramco might impact the larger oil and gas sector, investors interested in this sector should keep a close eye on the development of this issue. In particular, companies such as SembCorp Marine and Keppel Corporation might be directly impacted from any changes happening in the oil giant.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Keppel Corporation Ltd.