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It has been a while since the last assurance from a senior Saudi official that the initial public offering of oil giant Aramco is going ahead as planned, and this time the assurance comes from the top: Crown Prince Mohammed himself told Saudi daily Asharq Al Awsat that the IPO is on track for 2020 or 2021, depending on market conditions, The National reports. Ahead of that, in August this year, the company would hold its first earnings call.
The listing of 5 percent in Aramco, which last year emerged as the world’s most profitable company booking US$111.1 billion in annual net earnings, is the foundation of the Crown Prince’s ambitious economic diversification program dubbed Vision 2030. While some have questioned the valuation of the company, its recent maiden international bond worth US$12 billion drew an estimated US$100 billion in investor interest.
The IPO, however, has been surrounded by problems, from the choice of venue for its international listing to its effect on its home exchange given the size of the company. At one point, the deal was said to have been shelved for the observable future because the market conditions were unfavorable but soon after Aramco’s chief executive said the listing would go ahead as planned, just a bit later.
As part of the preparation for the listing of the century, Aramco acquired a majority stake in petrochemicals major Sabic to make itself even more appealing for investors. It was for this deal that it had to tap international bond markets: the price tag for the 70 percent in Sabic cost about US$70 billion.
Some observers of a more critical bend have noted that Riyadh is already spreading itself too thin, investing billions in various projects while Aramco is still 100-percent government owned. However, Crown prince Mohammed told Asharq Al Awsat that the Vision 2030 program has moved into the implementation stage.
“Like any strategic plans, [Vision 2030] must be subject to updates and modifications according to circumstances and actualities that become evident upon application, without shaking the vision’s pillars and objectives,” Mohammed said.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
initial public offering of Saudi Aramco (IPO) is going ahead as planned and I will tell you again that the IPO will never see the light of day.
The original IPO involving Saudi oil production assets and reserves is dead and buried. It was buried when Saudi King Salman called it off justifying his decision by saying that he didn’t want to expose Saudi Aramco’s finances or reserves to scrutiny. His words spoke volumes about Saudi reserves.
One must remember that Saudi Aramco was forced to withdraw its original IPO because of two major reasons. The first is the risk of American litigation related to the 9/11 destruction of the World Trade Centre in New York. The second reason is persistent question marks about the true size of Saudi proven oil reserves.
Any new IPO Saudi Aramco may offer will be a petrochemical one only since investors can see petrochemical assets but they can’t see or verify Saudi claimed oil reserves.
There was a lot of fanfare about Saudi Aramco when it sought to launch a major bond issuance to help finance its acquisition of 70% stake in Saudi petrochemical Basic Industries Corporation (SABIC).
To help a successful bond issuance, Saudi Aramco issued a prospectus in which it shed some light on its finances for the first time since it has become a fully-owned Saudi company.
The prospectus focused on the bright side of the company. It emerged from the prospectus that Saudi Aramco is the world’s most profitable company. However, the prospectus left many crucial questions unanswered. Prominent among them is the real size of Saudi proven reserves and the production levels of its very aging oilfields which underpin its current production.
The prospectus downgraded Saudi proven reserves by 10 billion barrels (bb) to 256.9 bb but that total included 191 bb of crude, 10.4 bb of condensates, 25.4 bb of NGLs and 187.7 trillion cubic feet of natural gas meaning that crude oil, condensates and NGLs amount to 226.8 bb. Still this figure is questionable.
Given an 8% depletion rate of Saudi oilfields, a production of 154 bb since oil was discovered in 1938 and a decline in Ghawar’s oil production from 5 million barrels a day (mbd) to 3.8 mbd, my calculations of current Saudi proven reserves don’t exceed 53 bb.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London