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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Is The Aramco IPO On The Brink Of Collapse?


In what could be a humiliating decision, Saudi Aramco is considering not staging an IPO next year as planned, due to the difficulty of pulling off an international listing.

On Friday, the Financial Times reported that Aramco is weighing a different strategy: selling stakes in the company to private investors and sovereign wealth funds. No final decision has been made yet, but there are several potential paths forward, including a public listing on Saudi Arabia’s domestic stock exchange plus a private sale. Or a private sale followed by an international listing, but maybe not until 2019.

Aramco officials tried to beat back the report, insisting that everything is moving forward as planned. “A range of options, for the public listing of Saudi Aramco, continue to be held under active review. No decision has been made and the IPO process remains on track,” Saudi Aramco said in a statement, according to the FT.

However, Reuters echoed the FT, reporting on Friday that Aramco was in talks with a Chinese investor.

Saudi officials, according to the FT, are concerned about the legal risks involved in taking the company public. The powerful crown prince has favored a New York listing, due to the political alliance with the U.S., while some Aramco officials and financial advisors prefer a less risky listing in London. A New York listing could expose Aramco to legal action stemming from Saudi Arabia’s alleged role in the 9/11 attacks—legislation passed by the U.S. Congress in late 2016 authorizes lawsuits from 9/11 victims against Saudi Arabia.

Related: Mass EV Adoption Could Lead To $10 Oil

But a London listing is apparently not that much more attractive. Saudi sources told the FT that Aramco would face tough legal scrutiny there as well.

Those roadblocks have led to second thoughts on the IPO altogether, with Saudi officials reportedly now considering a private sale.

After hyping the IPO for more than a year, shelving the plans would amount to a significant climb down for the state-owned oil company. On the other hand, as Bloomberg Gadfly points out, there are also upsides to a private sale that go beyond the difficulties of listing in New York or London. For instance, if Aramco attracts a disappointingly low sale figure, that figure could remain undisclosed if the sale was private. Also, Saudi Arabia could deepen its ties to Asia if it makes a private sale to major investors in China or India. Finally, Aramco would not have to publish estimates on its oil reserves – a long held state secret.

In addition, Saudi Arabia might have troubles engaging in coordinated production cuts within OPEC if it listed in New York, a practice that might be considered price fixing, and thus illegal.

But, even with all of that said, scrapping the IPO would amount to a defeat. It would also raise deeper questions about the country’s finances and its long-term fiscal health. The IPO has been billed as the largest ever public offering, with Saudi officials boasting that Aramco is worth some $2 trillion, which would translate into around $100 billion for 5 percent of the company. Independent analysts dispute those figures, estimating the company could be worth maybe only half of that. Related: New Tech Could Turn Seaweed Into Biofuel

While the precise figure is up for debate, few doubt it will be large, playing a crucial role in the country’s plan to diversify the economy. Saudi Arabia’s National Transformation Program (NTP) consists of a series of economic reforms aimed at accelerating growth, cutting spending on wasteful subsidies, while also raising tax revenue from non-oil sources. There is a bit more urgency to stimulate the economy because of Saudi Arabia’s sizable budget deficit and the fact that the economy entered a recession this year, in part because of the government’s own austerity measures.

The IPO of Aramco is considered a pivotal move that could address a lot of these problems all at once.  But Saudi officials have been hoping to time an IPO with oil prices trading at least as high as $60 per barrel. However, rebalancing the oil market and lifting prices has taken much longer than expected. In that context, it is no surprise that the Saudi King made his first visit to Russia earlier this month, desperate to make the OPEC deal work, not only for higher oil prices in the near-term, but to set the state for the country’s highly-anticipated IPO.


A decision not to take Aramco public would be a major setback.

By Nick Cunningham for Oilprice.com

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  • Bonaventure Stephen Gomes on October 17 2017 said:
    Like the proverbial romances and/or marriages of Hollywood (even Bollywood) stars, and starlets, on again, off again, on again, the Saudi Aramco's IPO is in the news with similar triggers. FT reported delays or off, however, Saudi Aramco reported that the IPO is on track in 2018. Like Hollywood/Bollywood villains who fight for the girl, eventually, the villain or the bad guy is overthrown, and the good guy gets the seemingly good girl. And, they live happily, thereafter. While there have been rumors or innuendoes of Saudi Aramco finding offline suitors like the Chinese, Russian or even Indian villains, strangely, Saudi Aramco is finding itself hard to come out of the closet. Right now, Saudi Aramco is cloaked in secrecy, and clothed in a veil. Unveiling would open up Saudi Aramco to the world-at-large. It is an open-secret about the inner workings of Saudi Aramco. Leading, and greedy, bankers, law firms, consulting firms, individual consultants, and many more, are privy to the Company's confidential, and privileged information. Coming out of the closet, and dropping its veil, will need stealth courage from Saudi Aramco. Unless an IPO or an Initial Public Outing will do the damage or deal. It is evident from past experience, Saudi Aramco does not have the wherewithal in-house experience, and gumption to make hard decisions. They are forever reliant on external consultants, and their expertise. Needless to say, millions of dollars may have been spent on consultants' fees, travel to exotic destinations (Saudi Aramco executives, and their merry men love these first class or business class travels raking in full mileage points), if it is true, that the IPO is cancelled or deferred, it is the tail wagging the dog.
    Let us get out of the box, and the comfort zone. London is waiting, New York is waiting, the world is waiting. It seems ludicrous in the first place that Saudi Aramco would go in for an IPO. And the Indian villains are looking for investments in India, and not the other way round. Do you get me Steve?
  • Jeffrey J. Brown on October 17 2017 said:
    The conventional wisdom is that Saudi Arabia has significant excess productive capacity.

    However, after showing a sharp increase in total petroleum liquids production from 2002 to 2005, their production from 2006 to 2010 was below their 2005 rate, although they did show a subsequent increase in production, in excess of the 2005 rate, from 2011 to 2016 inclusive, presumably aided considerably by the Manifa Field being put on line, which was reportedly fully on line by the end of 2014.

    However, when we look at net exports, a different picture emerges.

    As annual Brent crude oil prices approximately doubled from $25 in 2002 to $55 in 2005, Saudi net exports increased rapidly, from 7. 1 million bpd in 2002 to 8.7 million bpd in 2005 (total petroleum liquids, BP data).

    As annual Brent crude oil prices doubled again, from $55 in 2005 to an average of $110 for 2011 to 2013 inclusive, Saudi net oil exports only averaged 8.0 million bpd for this three year time period, 2011 to 2013--and in fact Saudi net exports have been below their 2005 rate for 11 straight years, through 2016.

    In my opinion, after 2010, especially with Manifa coming on line, although, Saudi Arabia was able to increase production, but they were not able to match their 2005 net export rate. So based on this premise, they were in fact experiencing production constraints.

    Following is an exercise in which I compare Saudi Arabia, 2005 to 2016, to the Six Country Case History, 1995 to 1999.

    Re: Saudi Net Oil Exports, Depletion Marches On

    The Six Country Case History consists of the major net oil exporters, excluding China, that hit or approach zero net oil exports from 1980 to 2010.

    The Six Country Case History, from 1995 to 1999, and Saudi Arabia, from 2005 to 2016, were both characterized by rising production and rising consumption, with a declining ECI Ratio (ratio of production to consumption) and declining net exports of oil, relative to 1995 and 2005 respectively.

    The following chart shows normalized post-1995 values for the Six Countries:


    Based on the observed initial rates of declines in the respective ECI Ratios (1995 to 1999 for the Six Countries and 2005 to 2016 for Saudi Arabia), Six Country estimated post-1995 CNE (Cumulative Net Exports) were 18 Gb and Saudi estimated post-2005 CNE were 60 Gb. In both cases, these extrapolations basically assume a perpetual rate of increase in production.

    Of course, Six Country production subsequently fell, and post-1995 CNE were only 7.3 Gb, about 40% of what the initial (1995 to 1999) projection showed. This has obvious implications for remaining Saudi CNE, when the inevitable Saudi production decline kicks in.

    There is another interesting similarity between the Six Countries and Saudi Arabia, in regard to the referenced time periods.

    Six Country net exports in 1996 were the same as 1999 (2.7 million bpd or about one GB/year). Saudi net exports in 2006 were the same as 2016 (8.4 million bpd or 3.1 Gb/year). The crucial difference between 1995 and 2005 and 1999 and 2016 is the rate of depletion in regard to remaining CNE, even though the respective annual volumes were the same.

    For example, the Six Countries shipped 14% of actual post-1995 CNE in 1996, and they shipped 24% of remaining actual post-1995 CNE in 1999, even though the respective annual volumes were the same. This is of course an accelerating rate of depletion. In this four year time period (1996 to 1999 inclusive), the Six Counties shipped 54% of actual post-1995 CNE.

    Saudi Arabia shipped 5% of estimated post-2005 CNE in 2006, and they shipped 10% of remaining estimated post-2005 CNE in 2016, even though the respective annual volumes were the same, which of course is also an accelerating rate of depletion. In this 11 year time period (2006 to 2016 inclusive), Saudi Arabia shipped about half of estimated post-2005 CNE.

    Note that given a finite remaining volume of Saudi CNE, it’s not whether, but to what degree, that we are seeing an accelerating rate of depletion in remaining Saudi CNE.

    In any event, it’s important to remember that the actual post-1995 CNE for the Six Countries were only 40% of what the initial estimate showed, using the same methodology that I’m using for Saudi Arabia.
  • Jeffrey J. Brown on October 17 2017 said:
    Assuming and extrapolating a perpetual rate of increase in production and consumption, I estimate that the total remaining volume of exportable liquids per capita in Saudi Arabia at the end of 2016 was 900 barrels of oil.

    Not 900 barrels per year, but 900 barrels in total remaining Saudi exportable liquids per capita at the end of 2016.

    To put remaining estimated Saudi CNE (Cumulative Net Exports) in terms of the Chindia region's 2016 demand for net imports, the remaining estimated cumulative supply of Saudi net exports of oil would meet the 2016 Chindia region's net import demand for about six years (note China's offer to invest in the Aramco IPO).

    And once the inevitable production decline appears, here are the mathematical facts of life regarding net exports:

    Given an ongoing, and inevitable, rate of decline in production in a net oil exporting county, unless they cut their internal liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty that the rate of decline in net exports will exceed the rate of decline in production and that the rate of decline in net exports will accelerate with time.
  • MarkBet on October 19 2017 said:
    News just came in that CEFC China Energy Co.the company buying a $9 billion stake in Russia’s biggest oil has no plans to invest in Saudi ARAMCO. In Verona, Italy, both CEFC Executive Director Yong Li and Rosneft Chief Executive Officer Igor Sechin said that they are not interested in buying shares of Saudi ARAMCO or participating in the IPO. They cited legal and legislative risks to the IPO. Basis comment from another reader, I looked up the Discounted Cash Flow model posted by an analyst online. There is also this risk analysis titled "Saudi ARAMCO - Great Opportunity or Riddled with Risks". After following the news, it seems like this IPO is more or less dead.

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