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Aramco Says No Plans To Shelve IPO

Saudi Oil

Following an FT report from Friday, Saudi Aramco tweeted on Saturday that it had no intention of shelving its plan for an initial public offering in 2018. The company called the FT report “entirely speculative”.

The FT on Friday quoted sources as saying the Saudi state energy company was considering foregoing a foreign listing, and instead opting for a private share sale in addition to the home-bourse listing. Talks with private investors and sovereign wealth funds have picked up in recent weeks, according to Financial Times sources. Private sales discussions have included the government of China.

This is the second media report about Aramco’s much-hyped IPO that the company has been quick to reject. Last month, sources told Bloomberg the Saudi government had come up with contingency plans for a possible delay. The sources didn’t go into detail about what the drivers behind the delay could be. A day after the report’s publication, Aramco sent an email to media dispelling the notion that the IPO could be delayed, saying instead that the IPO was indeed on track.

This second report rejection comes on the heels of another related story: UK’s Financial Conduct Authority has admitted it held talks with Aramco officials a few months prior to proposing a change in LSE’s listing rules in a bid to accommodate the Saudi oil titan.

FCA’s listing rules currently require that any company wishing to opt for a premium listing needs to list at least 25 percent of its shares. Aramco, however, plans to only float 5 percent of its stock – a much-anticipated event planned for the second half of 2018.

Related: Trump Just Made Iran A Wildcard

The London Stock Exchange has been seen as the preferred foreign venue for the Aramco IPO. Yet, an international listing poses unique challenges for the oil titan, which may struggle to conform to foreign listing rules that demand transparency and may prevent Aramco from participating in OPEC production quotas, which may be viewed as price fixing as far as the United States is concerned.

The conflicting reports about the direction of Saudi appear to signal a lack of unity among top advisors and the crown prince, who has the final say, on the issue.

By Irina Slav for Oilprice.com

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  • Jeffrey J. Brown on October 16 2017 said:
    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:

    http://i1095.photobucket.com/albums/i475/westexas/Slide1_zpsklujn2kn.jpg

    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.

    Note that their population increased from 25 million in 2005 to 32 million in 2016, as their total liquids consumption increased from 2.2 million bpd in 2005 to 3.9 million bpd in 2016.  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 2016 by 2016 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 2016 were 900 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 $70,000 per capita from selling their remaining estimated total volume of CNE.  

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