Arkad, a Saudi energy services company, is building a nationwide pipeline network for oil giant will be expanding outside the kingdom in a venture with ABB Ltd that opens the doors to business in North Africa and the Gulf region.
Managing Director Hani Abdul Hadi said in an interview that Arkad agreed to a deal to acquire a majority stake in a new joint venture with ABB’s oil and gas engineering, procurement and construction unit,. The project will give closely held Arkad a foothold in Kuwait, Algeria, and the United Arab Emirates, he said. Both ABB and Arkad 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,” Abdul Hadi 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 lacklustre 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 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.
The company is currently constructing a gas pipeline system for Aramco that will span more than 1,100 kilometres 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.
The joint venture which will be called Arkad-ABB SpA, will be based in Milan at the headquarters of ABB’s existing oil and gas EPC business.