Saudi Arabia May Link Aramco Revenue Royalty To Oil Prices

Saudi Arabia may link the royalty on oil revenue that Aramco currently pays to oil prices, the state oil giant’s chief executive Amin Nasser told Bloomberg in an interview at the World Economic Forum in Davos.

Currently, Aramco pays a fixed 20-percent royalty on its oil revenues. The oil firm also pays a 50-percent income tax, which Saudi Arabia reduced last year from a previous 85-percent tax, in a bid to attract international investors for the IPO and raise Aramco’s valuation for the process. Back then, the royal decree announcing the reduced income tax rate did not mention the fixed 20-percent royalty on oil revenues.

Now Nasser told Bloomberg that the royalty would stay at 20 percent “for the time being”, but later “there will be some alterations that would happen when the price changes in the market.”

The investors that will buy into Aramco when it lists 5 percent of its shares may not be very happy with a floating oil-price-linked royalty on revenues, because it could reduce investor returns if oil prices rise, even if it will protect investors in case of an oil price crash, according to Bloomberg.

The details on taxes that Aramco will be paying in the future will not be released until the company publishes its prospectus for the IPO “in due course”, Nasser told Bloomberg.

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Amid continuous speculation about a possible delay of Aramco’s initial public offering compared to the timeline given by the Saudis—the second half of 2018—Nasser said on Tuesday that as a company, Saudi Aramco would be ready for listing by the second half of this year, but it is awaiting a green light by its sole shareholder, the Saudi government.

“So from our side as a company, we are ready by the second half of this year, and the rest is on the shareholder’s hands,” Nasser told CNBC.

“It is all depending on the shareholder’s decisions where to list because we need to coordinate with the other markets when the decision is made,” Aramco’s chief executive said.

By Tsvetana Paraskova for Oilprice.com

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