French energy major Total, SA and Saudi Aramco said they signed a memorandum of understanding to build a giant petrochemical plant in Jubail, Saudi Arabia. The complex will be integrated downstream of the SATORP refinery, a joint venture between Saudi Aramco (62.5%) and Total (37.5%), in a move designed to fully exploit operational synergies. The 440,000-barrel-per-day refinery is recognized as being one of the most efficient in the world. The $5 billion project will comprise a mixed-feed steam cracker (50% ethane and refinery off-gas) with a capacity of 1.5 million tons per year of ethylene and related high-added-value petrochemical units. The two partners are planning to start the front-end engineering and design of the facility in the third quarter of 2018. The cracker will feed surrounding petrochemical and specialty chemical plants representing an overall amount of $4 billion in investments by third parties. In total, about $9 billion will be invested, creating 8,000 local direct and indirect jobs and will produce more than 2.7 million metric tons of high value chemicals.
These types of partnership arrangements ought to support Total’s goal of 5%-plus annual production growth. In addition, other projects and bolt-on acquisitions – such as the recent A.P. Moller-Maersk deal – ought to further fuel long-term growth initiatives. The company will likely be aggressive on these fronts, given the health of its balance sheet and strong cash flow. Good quality ADRs of Total SA, trading at a new 52-week high and yielding 5%, are a sound selection for conservative, income accounts willing to participate in a potential energy resurgence.