OREANDA-NEWS. November 12, 2012. Saudi Aramco and the National Shipping Company of Saudi Arabia (Bahri) signed a final agreement merging the fleets and operations of Bahri and Saudi Aramco’s subsidiary, Vela International Marine Ltd., at a Riyadh area hotel. The merger will provide a major contribution to the national economy and serve as an example of cooperation between national companies, reported the press-centre of Saudi Aramco.

Under this USD 1.3 billion agreement, Saudi Aramco would transfer its entire Vela fleet — 14 double-hull very large crude carriers (VLCCs), one VLCC used as a floating storage; five refined products carriers; all Vela’s ship-based cadres and some of its land-based personnel; and a part of its operations systems — to Bahri, which would then have a 77 vessel fleet.

Under the long-term shipping contract, Bahri will become the exclusive transporter of crude oil sold by Saudi Aramco on a delivered basis via VLCCs. Under the terms of the agreement, Bahri will enjoy protected rates when global shipping rates sink below an agreed minimum. If shipping rates exceed agreed upon limits, Bahri will compensate Saudi Aramco for amounts that may have been previously paid to Bahri when shipping rates were below the floor.

Bahri will meet Saudi Aramco’s future shipping requirements, estimated at 50 VLCCs, by guaranteeing the availability of Bahri’s owned 31 VLCC fleet and chartering other vessels on an as-needed basis.

Bahri and Vela further agreed to discuss provisional arrangements for operating Bahri’s VLCCs as part of Saudi Aramco’s VLCC Crude Transportation Program. Such arrangements will take effect from Jan. 1, 2013.

Under this agreement, Saudi Aramco will own 78,750,000 new shares issued by Bahri, representing 20 percent of Bahri’s post-issue market capitalization, and will have fair representation on Bahri’s Board of Directors.

Saudi Aramco will continue to manage all crude oil marketing and sale operations directly with its clients while Bahari will provide Saudi Aramco with reliable shipping services. The two parties will explore additional opportunities to expand their cooperation.

Among the signatories for Saudi Aramco were Khalid G. Al-Buainain, Saudi Aramco’s senior vice president of Engineering, Capital and Operations Support and Vela’s chairman; Mutassim Al-Mashouq, vice president for New Business Development; Ibrahim Al-Buainain, manager for New Business Development; and Said Al-Hadrami. Signatories for Bahri included Abdullah Al-Rubi’an, Bahri’s chairman; Salih Al-Jaisr, Bahri’s executive president; and Muhammad Al-Utaibi, chief of Financial Affairs.

In a speech preceding the signing of the agreement, Saudi Aramco President and CEO Khalid A. Al-Falih said, “I am not exaggerating when I say that this merger represents a living and practical example in which two of the Kingdom’s pioneering companies in commercial success and reputation for excellence in their areas of business join hands to earn the Kingdom a major economic benefit,” Al-Falih said.

“A partnership of this size gives us greater ability to compete in world markets for maritime transport. It also gives us an excellent opportunity to attain greater efficiencies and reduce operation and maintenance and overhead costs by combining the two companies’ human, technical and financial resources," Al-Falih said.

“At the same time, the economic benefits of the integration of Vela and Bahri include superb investment opportunities in ship maintenance services and other support services in the Kingdom,” Al-Falih said. “In turn, this will help create new training and employment opportunities needed by Bahri and the marine services sector, which will grow in tandem with the birth of this new national champion with its huge size and resources. The merger will also serve other strategic sectors which depend on maritime shipping as a major means of export and import, such as the petrochemicals and the mining sectors, therefore providing such sectors with increased agility that will positively affect the national economy’s prosperity and faster and wider growth.”

Bahri chairman Abdullah Al-Rubaian said, “I would like to extend my utmost gratitude to our partners in Saudi Aramco and Vela for their support and commitment to the conclusion of this merger, which stands witness to the two giant companies’ clear insight and solid and clear commitment to the support of the Kingdom’s economy.”