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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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Saudi King Stepped In To Call Off Aramco IPO

Saudi Arabia’s King Salman has demanded that the initial public offering of Saudi Aramco be called off, stepping in to shelve the plans of his heir apparent, Crown Prince Mohammed bin Salman, for what was tipped to be the world’s biggest IPO ever, Reuters reports, citing three sources with ties to Saudi government insiders.

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 it.

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.”

According to one of Reuters’ sources, Saudi King Salman held consultations with family members, oil executives, and bankers in early June. The main concern over listing Aramco was reportedly that an IPO would require full disclosure of finances and reserves of the Saudi state oil giant. Related: Which Refiners Win From Strict Fuel Regulations?

Later in June, the King sent a message to his administrative office—the diwan—demanding the IPO be called off, the sources told Reuters, with one source noting that King Salman’s decision is final.

According to the sources, despite the Aramco IPO halt and a blow to Crown Prince Mohammed bin Salman’s economic reform agenda in which the oil giant’s listing was a key point, MbS remains the favorite son and heir with vast powers over various policies.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on August 28 2018 said:
    If Saudi King Salman has decided to call off the IPO of Saudi Aramco because that would have required full disclosure of finances and reserves of Saudi Aramco, it confirms what I have been saying all through that Saudi Arabia’s claimed proven reserves of 266 billion barrels (bb) are not true. 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.

    The other major reason behind the demise of the IPO is the risk of American litigation. Any Saudi investment in the US or listing of the IPO internationally could be at risk by the legislation passed by the US Senate and the US House of Representatives in May 2016 that would allow families of September 11 victims to sue the Saudi government for damages. The law removes the sovereign immunity, preventing lawsuits against countries whose citizens were found to be involved in the attacks. The minute one law case is launched by an American citizen against the Saudi government, all Saudi assets in the US will be frozen.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • JACK MA on August 28 2018 said:
    SA has lied for 30 years about their reserve levels. A IPO would require a audit and then the world would know that Saudi wells are mostly water. This is why the IPO is being called off and this is why SA wants Syria and Yemen for their oil. The world is being fooled. I ALWAYS thought Jesus was King and the word was reserved. A man is no king, no matter what he calls himself. IMHO
  • Jeffrey J. Brown on August 28 2018 said:
    Excerpt from the 2012 book, “On Saudi Arabia”

    http://www.amazon.com/On-Saudi-Arabia-Religion-Lines/dp/0307473287

    What scares many royals and most ordinary Saudis is that the succession, which historically has passed from brother to brother, soon will have to jump to a new generation of princes. That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founder’s family could find themselves disenfranchised. Saudis know from history that the second Saudi state was destroyed by fighting among princes. Older Saudis vividly recall how this third and latest Saudi state was shaken by a prolonged power struggle between the founder’s two eldest sons after his death in 1953.

    Today’s Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another—from Brezhnev to Andropov to Chernenko—before Gorbachev took power with reform policies that proved too little too late. “They keep dying on me,” Ronald Reagan famously said of the four Soviet leaders he dealt with in less than three years. The next U.S. president almost surely will have the same experience with ailing Saudi rulers.
  • Jeffrey J. Brown on August 28 2018 said:
    Saudi Arabia’s Annual Net Exports (Gb/year, total petroleum liquids) and what I call the ECI Ratio (Export Capacity Index, i.e., the ratio of production to consumption) by Year, 2005 to 2017, BP data:

    2005: 3.2 (Gb/year), 5.0 (ECI Ratio)

    2006: 3.1, 4.7

    2007: 2.9, 4.3

    2008: 2.9, 4.1

    2009: 2.5, 3.3

    2010: 2.5, 3.1

    2011: 2.8, 3.4

    2012: 3.0, 3.4

    2013: 2.9, 3.3

    2014: 2.8, 3.1

    2015: 3.0, 3.1

    2016: 3.1, 3.2

    2017: 2.9, 3.1

    Est. post-2005 Saudi CNE (Cumulative Net Exports) based on 2005 to 2017 rate of decline in ECI Ratio:

    ECI Ratio declined at 4.0%/year, implying that ECI Ratio hits 1.0, and thus zero net exports, around the year 2045.

    Est. post-2005 Saudi CNE (based on 2005 to 2017 data) = 3.2 Gb/year (net exports at apparent export peak) X 40 years (est. number of years to zero net exports) X 0.5 (area under a triangle) less 3.2 Gb (net exports at peak) = Approx. 60 Gb.

    CNE Cumulative Net Exports 2006 to 2017 inclusive were about 35 Gb, implying that Saudi Arabia has already shipped more than half of their estimated post-2005 CNE.

    Saudi Arabia shipped 5% of estimated post-2005 CNE in 2006, and they shipped 10% of remaining estimated post-2005 CNE in 2017, even though the respective annual volumes were about the same, which of course is an accelerating rate of depletion. In this 12 year time period (2006 to 2017 inclusive), Saudi Arabia shipped about 58% 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.

    Note that their population increased from 25 million in 2005 to 33 million in 2017, as their total liquids consumption increased from 2.2 million bpd in 2005 to 3.9 million bpd in 2017.  Their net exports fell relative to 2005, even as production increased, because the increase in their consumption outpaced the increase in production.  

    Note that the ECI Ratio extrapolation for Saudi Arabia in effect assumes a perpetual rate of increase in production.  Given an inevitable production decline, their net export decline rate will really kick into high gear once they see a sustained production decline.  

    In any case, if we divide estimated post-2005 CNE at the end of 2005 by 2005 population and estimated remaining post-2005 CNE at the end of 2017 by 2017 population, estimated post-2005 Saudi CNE at the end of 2005 were 2,400 BO per capita and remaining estimated post-2005 CNE at the end of 2017 were 800 BO per capita.  

    For the sake of argument, if we assume that the Saudis sell their remaining CNE for about $75 per barrel, they would generate about $60,000 per capita from selling their remaining estimated total volume of CNE.  

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