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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Aramco To Lose ‘Forever-Right’ To Saudi Oil Resources

In what could be a power struggle between Saudi Aramco and the Saudi government, the Kingdom has altered the concession contract with the oil giant to 40 years with an option for renewal from a previous deal for oil and gas rights ‘in perpetuity’, the Financial Times reported on Monday, quoting three people briefed on the issue.

The changes were reportedly made as Saudi Arabia was making procedural, tax, and governance changes in preparation of the initial public offering (IPO) of Saudi Aramco, which now, it seems, is indefinitely postponed, or even called off.

Last Wednesday, reports emerged that Saudi Arabia had called off its highly anticipated, US$100-billion IPO, Reuters sources said, with even plans to list the state-run oil company on its domestic bourse, Tadawul, being scrapped. The listing was expected to be the world’s largest IPO, and the Saudis pegged a large part of the Vision 2030 economic agenda on proceeds from the IPO.

Saudi Arabia immediately denied the reports that the listing was canceled, with Energy Minister Khalid al-Falih saying in a statement carried by the Saudi Press Agency:

“The Government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum. This timing will depend on multiple factors, including favorable market conditions, and a downstream acquisition which the Company will pursue in the next few months, as directed by its Board of Directors.” Related: Mexico’s New President To Deal Blow To Oil Industry

In that same statement, al-Falih said that in order to prepare for Aramco’s listing, the Saudi government had taken several steps in that direction, including “reissuing a long-term exclusive concession,” without specifying details.

According to FT’s sources, cutting the concession period from ‘forever’ to 40 years—but still well over the typical 20-year concession contracts that international oil companies have with other countries—is now pointless with the IPO stalled, and has only served to exert control over the oil giant that has tried to keep its ‘in perpetuity’ concession.

The government has sought to have a shorter concession period, closer to the 20-year concessions that Big Oil have, but this would have meant changes in what Aramco could count as oil reserves, and would have had impact on its valuation, according to FT.

By Tsvetana Paraskova for Oilprice.com

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  • Corvettekid on August 27 2018 said:
    Does this even matter ? Saudi Aramco and Saudi Arabia are basically one and the same.

    Even if they do a partial IPO, the government will wield control over Aramco much like Brazil's government does over Petrobras.
  • Mamdouh G Salameh on August 27 2018 said:
    The IPO of Saudi Aramco is dead and buried. The major reasons behind its demise are the risk of American litigation and question marks about the real size of Saudi proven reserves. No investor would have considered buying into the IPO without independent auditing of Saudi proven oil reserves.

    Saudi Arabia claims proven reserves of 266 billion barrels (bb) when my own research and others’ has shown them to be in the range of 74-80 bb. Saudi Aramco and the Saudi government as well as the CIA know that Saudi Arabia has not been truthful about its proven oil reserves.

    The repercussions of submitting Saudi reserves to an independent auditing and proven wrong will be so horrendous to fathom. They will shatter the myth of Saudi Arabia as an indispensable oil superpower, lead to the collapse of the Saudi economy and see oil prices rocketing to $150-$200 a barrel not to mention the very adverse impact on the global economy.

    I don’t believe for a minute that there is a power struggle between Saudi Aramco and the Saudi government. They are one and the same. Changing the concession contract from perpetuity to 40 years is irrelevant. Even with Saudi claim of 266 bb, the reserve to production ratio (R/P) is 61 years based on current technology while based on my calculation of Saudi reserves of only 74-80 bb, the R/P ratio will be 20-22 years. So according to my projections, Saudi proven reserves would have been depleted long before the 40-year concession.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bonaventure Stephen Gomes on August 30 2018 said:
    Saudi Aramco - RIP - Return If Possible.

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