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The U.S. Production Boom Is Becoming A Problem

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Aramco Separates Non-Oil From Core Oil Assets Ahead Of IPO

Saudis

Saudi Aramco is restructuring its non-oil businesses into subsidiaries and possible spin-offs as it aims to streamline operations and achieve a higher valuation for its profitable core oil business ahead of the IPO, Reuters reported on Monday, citing industry and financial sources.

Around six months ago, Saudi Aramco set up a new subsidiary to manage its multi-billion U.S. dollar pension fund unit, and the retirement fund is now managed by financial professionals in Dhahran, the city hosting the headquarters of the Saudi oil giant, sources familiar with the restructuring told Reuters.

Other restructuring plans at Aramco—as it tries to give investors a clearer oil-only valuation picture ahead of the IPO—include potential spin-offs of the aviation division and the healthcare division by either forming joint ventures or bringing other companies to operate the aviation fleet, according to some of Reuters’ sources.

Saudi Arabia has been using Aramco as a kind of investment vehicle in undertaking government projects such as building schools and infrastructure. While this has been a regular practice and of social and community image to the state oil giant, it has drawn criticism that it’s not using money and people efficiently.

“Aramco doesn’t only look at its oil and gas related interests but it is also a channel and mechanism for the nation. This drains Aramco’s resources both in terms of money and its core people,” one industry source working in Saudi Arabia told Reuters.

Related: Don’t Take Higher Oil Prices For Granted

“If I am an investor I need to be very clear what I am investing into, it cannot be fuzzy,” the source added.

Aramco’s IPO is “most likely” to take place in 2019, Saudi Energy Minister Khalid al-Falih said at the end of May, likely confirming that plans for the share sale have been pushed from this year to next.

The planned sale of 5 percent of Aramco—in what would likely be the world’s largest IPO ever—could bring Saudi Arabia US$100 billion if Saudi officials’ valuation of the company at US$2 trillion stands. Analysts, however, value the Kingdom’s oil giant at much less, with the majority putting the valuation at between US$1 trillion and US$1.5 trillion.

By Tsvetana Paraskova for Oilprice.com

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