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TOTAL Joins Saudi Aramco to Expand Downstream Operations


TOTAL S.A. TOT announced that it has signed a memorandum of understanding with Saudi Arabian Oil Company (Saudi Aramco) to develop a giant petrochemical complex in Jubail, Saudi Arabia. Saudi Aramco will own 62.5% of the project and TOTAL will possess 37.5% of the complex.

This complex will be located next to the SATORP refinery, to fully exploit operational synergies from the existing refinery. The project will be developed with a total investment of $9 billion, out of which $5 billion will come from TOTAL and Saudi Aramco, and the rest $4 billion from third-party investors.

The new petrochemical complex will comprise a world-size mixed-feed steam cracker with a capacity of 1.5 million tons per year of ethylene and related high-added-value petrochemical units.

Demand for Ethylene

Per IHS Markit report, the demand for ethylene for the next five years is going to exceed the average world GDP growth rate. The lion’s share of the demand is expected to come from India, China and Middle East; so setting up an ethylene producing unit in Saudi Arabia makes sense.

A major share of ethylene production goes toward production of polyethylene, a widely used plastic on a global scale. Per a report from IHS, demand for ethylene is likely to touch 200 million tons by 2020, with a chunk of it coming from North America and Middle East.

TOTAL Continues to Expand

TOTAL continues to expand its operations through acquisitions and strategic partnerships. Last month, the company expanded its operations in the Middle East, entering into a partnership with the Supreme Petroleum Council of the Emirate of Abu Dhabi (United Arab Emirates) and Abu Dhabi National Oil Company. (Read more: TOTAL Expands Operation in the Middle East With Partnership)

TOTAL continues to make strategic acquisitions and agreements with existing operators in high-potential areas, and divest assets that are not in sync with its long-term objectives. The company acquired assets worth $313 million while disposing assets totaling $1,119 million in fourth-quarter 2017.

TOTAL’s expanding global operation through organic and inorganic methods makes it a formidable competitor for global players like Exxon Mobil Corporation XOM, Eni S.p.A. E and Chevron Corporation CVX.

Price Movement

In a year’s time, TOTAL’s shares have returned 19.5% compared with the industry’s rally of 17.2%.

Zacks Rank

TOTAL has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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