Pressured by slumping oil prices, Saudi Arabia is considering listing shares in state-owned Aramco.
Probably the world’s most valuable company and the world’s biggest oil producer, Saudi Aramco is reportedly worth trillions of dollars, but it is one of the world’s most secretive oil companies and reveals no information on revenues and offers only limited information on its hydrocarbon reserves.
Muhammad bin Salman, Saudi Arabia’s deputy crown prince, said a decision will be taken in the next few months on whether to proceed with an IPO. “Personally I’m enthusiastic about this step,” The Economist quoted him in an interview. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.” Prince Muhammad also said that a listing would make the company more transparent.
Low oil prices as well as mounting tensions with its archrival Iran, following the execution of Saudi cleric Nimr Baqr al-Nimr in early January, have damaged the Kingdom’s closed economy. Even though Saudi Arabia still has sizable foreign reserves to protect its economy from lost oil revenue, it has started to cut government spending and reduce generous energy subsidies to save cash.
The Saudi prince said selling shares in Aramco is in the interest of the Saudi market. He has held two high-level meetings recently on the possibility of floating Saudi Aramco shares. Officials say options under preliminary consideration range from listing some of its petrochemical and other downstream firms, to selling shares in the parent company, which includes the core business of producing crude. The upstream part of the business would be most attractive to investors.
Justin Urquhart-Stewart, Founder of London’s Seven Investment Management, told New Europe on January 8 the IPO “is providing the Saudis with opportunity of being able to introduce it to the market almost as a backup for extra capital support if they need it. They can sell off small portions of it or use it as a method of security against further loans and facilities and provide greater security for their deficit position”.
Aramco pumps around 10 million barrels a day and has the capacity to produce 12 million barrels a day. Aramco said in 2015 that it had proven reserves of over 261 billion barrels of crude oil and condensate. By contrast, ExxonMobil, the largest non-state-controlled oil company, had proven reserves of 25.3 billion barrels of oil equivalent in 2014. Aramco also controls massive refining assets both inside Saudi Arabia and abroad.
The kingpin of the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia, has refused to cut oil production to boost oil prices, keeping its spigots wide open and competing for global market share with US shale producers who have flooded the world with oil backed by cheap debt and equity financing. “The Saudis made this decision primarily to knock out the smaller and less viable alternatives, including shale,” Urquhart-Stewart told New Europe. “Objectively it provides them with another source of capita should they need it. But it tells all those other producers that Saudi is strong enough and has deep pockets enough to carry this along so give up now or suffer more pain.”
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