East Pipes Integrated Company for Industry announced the termination of a contract with Saudi Aramco, the state-owned oil and gas behemoth. The agreement, valued at 153 million Saudi riyals ($40.8 million), involved the manufacture and supply of steel pipes.
The cancellation came at the behest of Aramco, according to a disclosure East Pipes submitted to the Saudi Stock Exchange (Tadawul). The brief announcement offered no explanation for Aramco's decision to scrap the deal.
East Pipes, however, sought to reassure investors, emphasizing the termination would have no negative financial impact on the company. In their statement, they highlighted that the contract hadn't been factored into their current year's production schedule, and no raw materials for the pipes had been procured.
The eight-month contract was awarded to East Pipes late last year, but details regarding the specific type or purpose of the steel pipes were not disclosed. This cancellation comes amidst a period of high oil prices, driven by global supply concerns and rebounding demand following the pandemic.
Analysts speculate that Aramco's decision might be linked to their ongoing efforts to optimize spending and potentially source steel pipes from a different supplier offering a more competitive price or faster turnaround time. The company is known for its meticulous approach to procurement, often soliciting bids from multiple vendors before finalizing contracts.
East Pipes, established in 2008, specializes in manufacturing steel pipes for various industrial applications, including the oil and gas sector. The company boasts a proven track record of supplying pipes to clients within the Kingdom and aims to expand its regional footprint.
While the termination of this particular contract appears inconsequential for East Pipes, it raises questions about Aramco's procurement strategy, particularly regarding steel pipes, a crucial component in their oil and gas operations. Market observers will be keenly following any future developments or announcements from either company that might shed light on Aramco's rationale behind the cancellation.