Luberef Plans IPO; Will Make Group III

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Luberef Plans IPO; Will Make Group III
Luberef's base oil plant in Yanbu’ al Bahr, Saudi Arabia. © Luberef

Luberef on Sunday announced plans for an initial public stock offering – which analysts estimated could raise U.S. $1 billion – and that it intends to expand one of its Saudi Arabian base oil plants and upgrade it to make API Group III oils.

Approved last week by Saudi Arabia’s Capital Market Authority, the offering will sell 50,045,000 shares of stock currently owned by Jadwa Industrial Investment Co., representing the Saudi firm’s 29.7% stake in Luberef. The refiner has yet to set a target price range for the stock, but Bloomberg estimated that the sale could raise up to $1 billion.

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Luberef said little specifically about how it would use proceeds, but the company did say that it plans to expand Group II production capacity and add Group III production at its base oil plant in Yanbu’ al Bahr, Saudi Arabia.

“The next phase of the company’s growth story includes the Yanbu Growth II expansion project, which is planned to be completed in 2025 and which will add additional Group II base oil production capacity and introduce Group III base oil production capacity to Luberef,” a news release about the IPO stated. The company has not disclosed the price of the project or how much Group II or Group III capacity it would install.

Luberef is formally named Saudi Aramco Base Oil Co., and Aramco owns the 70% of Luberef not currently owned by Jadwa. Luberef operates two base oil plants. The one in Yanbu has capacity to make 1.1 million metric tons per year of Group I and II oils. The other plant is in Jeddah, Saudi Arabia, and has capacity to make 275,000 t/y of Group I oils.

Luberef is working to develop a hub of lubricants operations around the Yanbu refinery, which draws crude feedstock from Aramco. The project, named LubeHub, has already drawn agreements from manufacturers of lubricants, transformer oils, white oils, waxes and process oils to consider building facilities there.

As a subsidiary of Aramco, Luberef is part of Aramco Base Oil Alliance, one of the world’s largest base oil suppliers. It also includes wholly owned Motiva, which operates a 2 million t/y plant making mostly Group II oils on the United States’ Gulf of Mexico coast and S-Oil, which is majority-owned by Aramco and has a 2 million t/y Group II and III plant in Onsan, South Korea.

Luberef’s news release said it is a very competitive base oil company, claiming that non-feedstock per unit production costs are 60% less than the industry average, and that Aramco’s crude oil usually costs less than Brent crude but has high base oil yields. The news release also painted a rosy outlook for the global base oil market, citing estimates that demand will increase by 5 million t/y by 2030. Luberef’s base oils are consumed mostly in Saudi Arabia and the broader Middle East.