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Published on January 8th, 2016 | by James Ayre


Saudi Arabia’s Giant & Secretive Oil Company May Go For IPO

January 8th, 2016 by  

Originally published on EV Obsession.

saudi-aramco-logoIn an interesting but perhaps not surprising move, the government of Saudi Arabia has revealed that it is currently mulling the idea of publicly listing the state-owned oil company Saudi Aramco.

Going by an interview with the kingdom’s deputy crown prince, Muhammad bin Salman, conducted by The Economist, the final decision on the matter is expected to be made within only a few months time.

“Personally, I’m enthusiastic about this step,” he stated in the interview. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.”

The Economist provides more:

The prince has held two high-level meetings recently on the possibility of floating Saudi Aramco shares. Officials say options under preliminary consideration range from listing some of its petrochemical and other “downstream” firms, to selling shares in the parent company, which includes the core business of producing crude.

Officials say Saudi Aramco is worth “trillions of dollars”, but it is one of the world’s most secretive oil companies and reveals no information on revenues and offers only limited information on its hydrocarbon reserves. Prince Muhammad says that a listing would make the company more transparent. Diplomats say investors are already being sounded out. The talk is of first floating part of the company in Riyadh — perhaps 5%. In time that could rise, though the kingdom would continue to exercise control over the company.

While Saudi Aramco’s reserves are claimed to be around 261 billion barrels, it’s not clear how accurate this number is, as the company is quite secretive. If the numbers are accurate, then that puts the company’s reserves roughly 10 times higher than those of ExxonMobil.


As the Economist notes:

Since Prince Muhammad became head of the defence ministry, and the Council for Economic and Development Affairs, just over a year ago, the country’s geopolitical swagger has been coupled with plans for sweeping economic change at home. These plans include gradually eliminating subsidies on electricity, water and housing; seeking private-sector provision in health care and education; introducing a 5% value-added tax on non-essential goods; and studying the complete or partial privatization of over two dozen agencies, including the national airline and telecoms firm. Asked if Saudi Arabia was undergoing a “Thatcherite revolution”, Prince Muhammad replied: “Most certainly.”

It should probably be stated here bluntly that Saudi Arabia currently appears to be experiencing financial problems. Despite claims that the country possesses a sovereign wealth fund of around $650 billion, the actual financial situation of the country is really something of a mystery. Given that the current compliance of most of the country’s population is down to the subsidization that is now being eliminated, one would presume that that’s not a measure that would be taken unless necessary. Though, cluelessness and arrogance amongst long-established elites is a constant of history (as many famous Arabic historians have themselves noted), so who knows?

It should also be noted here that, despite the relative media blackout on the subject, things don’t appear to be going well with regard to the Saudi intervention in Yemen — with solid reports emerging that militias have been regularly making successful raids against military bases in Saudi territory in recent days.

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About the Author

James Ayre’s background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy. You can follow his work on Google+.

  • Simply Thinking

    What if the crude comes to US$10/barrel and IPO tanks ?

  • neroden

    The Saudi military situation is a whole ‘nother ball of wax and I think they have no idea what they’re doing and are setting themselves up for catastrophe.

    …however, if the royals successfully sell everything and take all the money out of the country first, they might not care.

    • Global Citizen

      After that Uncle Sam, everything is yours you can bomb anywhere.

  • neroden

    Oho. I think Saudi Arabia is trying to extract cash from suckers for the oil company before the oil company becomes worthless.

    We already know that a previous Saudi oil minister was predicting that oil would become worthless soon. If they’re serious about this they may be trying to get their money out while the getting is good.

    • Global Citizen

      He said Stone Age did not end because there were no stones.

      Same for thing this is not crude times but modern times.

    • Global Citizen

      Extracting the cash from suckers sure.

      You can call it anything in arabic.

  • Alharbi

    “Those who know do not speak. Those who speak do not know”
    Lao Tzu

    • ROBwithaB

      If all those who know never speak, how do we educate those who do not know ?
      Bob Smith

    • Kyle Field

      Speaking in cryptic riddles doesn’t move the conversation forward. Hinting that there is some mystery that fundamentally changes the discussion is just muddling in doubt. In other words, say what you know or stick to part 1 and don’t speak in the first place. Please.

      • Alharbi

        Saudi Aramco upstream operations, worth trillions of dollars, are not likely to be sold to the public. Currently, several Aramco downstream operations are the focus of IPO discussions.

        • Kyle Field

          While it would be a private “Initial Public Offering”, it is still not a wise investment to make given the likely drop in value of oil and related resources. A change in the buyer does not make the purchase more intelligent.

        • Global Citizen

          Trllions when crude trades for in double digits, barrel rate comes to single digit, you can have billions then. I am off crude for sure.

        • neroden

          Selling the refineries? That makes very little sense unless the refineries are obsolete. Refineries have more lasting value than underground sludge.

    • Dan

      When it is night for all creatures,
      a master of restraint is awake;
      When they are awake, it is night
      for the sage who sees reality.

      I think that means the archetypal ‘wise man’ should awaken those around him, if they are in need of being woken up. The master of restraint is awake and taking action in the world run by those ‘asleep at the wheel’

  • Bob_Wallace

    Just heard on the BBC. Selling off 20% of Aramco would finance one year of the Saudi government/economy.

    The entire company is worth only five years? I’d say SA is in a tight spot. If SA continued to hold 100% they would need a solid 20% per year return to stay afloat.

    • Karl the brewer

      These two graphs say it all….

    • Karl the brewer

      A picture paints 1000 words, so here are two of them….oil price first and number of ev’s second

      • Karl the brewer

        And this chart plots EV sales right up to Sept 2015. I bet the Saudi’s just love that curve 🙂

        • Bob_Wallace

          I doubt that EVs/PHEVs have impacted oil in any meaningful way.

          If I had to guess I’d guess that we’ll see some meaningful price increase during the next five years. First we’ve got to burn off the surplus which will take several months, even more than a year.

          • Karl the brewer

            Totally agree, it’s just nice to see those current trends going in opposite directions 🙂 These guys seem to think end of 2016 – http://oilprice.com/Energy/Energy-General/10-Key-Energy-Trends-To-Watch-For-In-2016.html No 4 In the list brings a smile to the face.

          • Bob_Wallace

            Assuming Tesla hits 500k, other US/European manufacturers combine for 300k and China does close to 1 million a year by 2020 then I expect oil will be taking a meaningful hit from electrics by 2025.

          • disqus_XxS2HEo18P

            Currently electric bikes make bigger impact in Europe than EVs. 600 000 a year sold in Germany alone. Add the fact that several European cities are planing to ban cars from their centres and this trend will continue. As you say EVs will have little impact on price of oil this decade but will affect futures.

          • Matt

            I think ICE bans in city cores are coming. And sooner than most expect, once it has happen in one of the worlds top 20 it will spread like lighting.

          • Kraylin

            And in that 10 years Trillions of dollars will be made off of oil…. its far too early to count oil out. I greatly appreciate the positive beliefs here on CleanTechnica but it is short sighted at best to think you can’t make money in the traditional energy sectors right now.

          • Bob_Wallace

            I have no doubt that money will be made from oil. But if history repeats itself the value of stock will crash before the earnings stop.

            That said, you might want to take a look around right now and see how much money is being lost by people who have invested in oil.

          • Kraylin

            For the record I hold Tesla and Oil stocks, market is all timing. I don’t let my personal beliefs dictate my investments, well at least i try not to. Not to risk upsetting readers here but I just like to try and add balance. Too many people seem to think oil is done when in reality we aren’t even close. I am not a financial advisor so don’t take my advice as a suggestion to buy oil but I do believe oil(energy stocks) will rebound potentially for gains as huge as the drops have been…

          • neroden

            I ditched my oil stocks at the top of the market in 2008. (We had a *lot*, owned since the early 1950s.) I have not regretted it. It’s too difficult to call the timing on these things, and I got out at a high point.

          • Kraylin

            That’s great news. I hope to tell a similar story in a few years =). It is definitely very difficult to call the timing right. The real challenge will be, some of the things I bought are down 40-60%. Do i sell them at a great 20% return and watch them go higher? At least that way I don’t risk it going back down, always an ongoing challenge. Either way I believe oil will have plenty of growth going forward, its simply vogue right now to divest from them. As someone else mentioned as well, the market it so volatile that one major incident involving oil will send it skyrocketing again. The markets don’t always make sense…

          • neroden

            Well, this is not investment advice, and I am not your investment advisor, but here was what I was thinking:

            Obviously if you own an old oil well, pump the oil out of the ground, and sell it, this is a good business financially speaking — period. Even if oil prices drop to $10/bbl, it’s a good business.

            The problem is that the integrated oil companies are *not doing that*. They are spending the profits from the oil on “exploration”. And exploration is a *loser*. Exxon, Chevron, Shell, et al, have spent billions on exploration in the last 10 years and gotten basically *nothing* for it — the reserves they have found are worth a fraction of the money they spent on exploration.

            As long as oil company management is determined to waste all of the profits on “exploration”, I think those are going to be bad sorts of companies to invest in.

            Standalone refineries are a whole ‘nother market which I’ve never sat down and analyzed.

            And if you can somehow invest in a big warehouse full of stored oil, that might be a good investment, I don’t know, I haven’t analyzed that either.

          • ROBwithaB

            There are moral as well as financial reasons to avoid investing in the oil sector.

            There probably is money to be made, especially in the wake of significant dis-investment. Stock prices will drop to artificially low levels.
            There is an incentive to “cheat the system”, as there was during the Apartheid sanctions era.
            You could probably take advantage of this.
            But SHOULD you?

          • Kraylin

            I wholeheartedly appreciate your view but respectfully I think you are over thinking it. Should we do whatever we can to increase our use of renewable energy and thereby reduce our use of fossil fuels, yes definitely, in my opinion.

            Does that suddenly make oil EVIL?!?!?! No most definitely not, again only in my opinion. Oil provides hundreds of thousands of jobs, jobs for people who have families to feed. Oil provides modern conveniences that ALL of us use, oil provides the energy to heat our homes, build our homes, need i go on? So come on…. your soap box is very tall…. respectfully =)

            I am excited for the transition as well, but I am also not going to stick my head in the sand and pretend oil is about to dissappear, I have a family to feed as well. Additionally, i need to make enough money to buy myself a Tesla!! =)

          • ROBwithaB

            Wasn’t intended as any kind of personal criticism.
            Just a philosophical / rhetorical question.
            I sometimes use “you” in the broad sense of “anyone”, because people often accuse me of pomposity when I use the more correct “one”. You can’t please everyone…

            There is some debate in any case as to the effectiveness of disinvestment as a tool for change.
            The more effective approach, I believe, is to reduce physical demand for oil, rather than any intervention in the capital markets. The urgency with which we need to act would be determined by the negative effects of our reliance on fossil fuels. There are becoming increasingly apparent, I believe, to the extent that they will soon become obvious to all.

            Despite the many societal benefits provided by oil, if the negatives outweigh the positives, then one probably has a responsibility to “accelerate the transition” in whatever way possible. But I certainly don’t presume to tell anyone how they should live their lives, or how their priorities should be stacked.
            I have my own moral conundrums to confront, and it is in the context of those that I posed my rhetorical question.

            Honestly, I would probably consider investing in oil stocks myself, if I thought I could second-guess the market accurately enough to get the timing right, and if I believed there was significant scope for long term growth.
            But I’m negative on both counts.

            In the meantime I’m bundling into Tesla stock, hoping that the recent dip represents a panic-fuelled overreaction by “general” investors who lack insight into the underlying trends and a proper understanding of the competitive advantages that Tesla enjoys.
            Do I have access to better information than the market as a whole? I certainly hope so….

          • Kraylin

            A very well written reply, thank you for that, you make some very good points.

          • Kyle Field

            I love this constructive discussion. Perfect example of the respect that keeps me coming back to CT day in and day out 😀

          • Dan

            Investment strategy and economics are one arena of science. Climate science and ecology are another. Logic and Ethics are another. Regardless of being able to make money with oil, none of it will matter if the Earth’s global average temperature rises too much. The only ethical choice, and practical choice, is to invest in sustainable capital. Stocks in the renewable sector may be one option and capital like solar panels or an electric car are another. I’m rather limited in my means, but I drive a 4 cylinder volks golf and get wind power through my utilities. If I had $ I’d buy land, build an earthship and start an aquaponics business powered by solar panels.

            If the market decides for us, well… then we aren’t making choices based on the underpinning fact that ecology enables us to live but on a piece a paper or numbers on a screen.

          • neroden

            China may go significantly faster. There also may be an acceleration.

          • Radical Ignorant

            Oil is business. Business value is speculative. Tesla is worth much more than it’s products at the moment. Oil can be measured much less than based on revenues at the moment. And insight into what will be after decade can shape in meaningful way what is now. Please take into consideration that kings looks further than to next election.

          • Otis11

            I suspect you’re right… I’m hearing that oil won’t be significantly priced before 2017. But there’s also a ‘worst reasonable case’ 2024. (Which realistically means never with the rates RE is dropping in price).

            Only time shall tell…

    • neroden

      Hah! KSA can only maintain their economy for 5 years with their current cash reserves. Selling off Aramco would get them an extra 5 years, up to 10.

  • ROBwithaB

    Prince Muhammad: “Hey, let’s try and sell all this gunk while it’s still in the ground, before anyone realises that we’re not going to be able to pump it out and sell it all anyway.”

    Energy Adviser Abdul: “With respect, your excellency, surely nobody would be that stupid? To buy something that will soon be worthless.”

    Prince Muhammad: “You have obviously never been to America, cousin Abdul… “

  • Bob_Wallace

    1. Release a report that paints a very rosy future for oil.

    2. Sell off as much of your oil industry as you can to those who believed #1.

    3. Move you recovered capital to an industry that has a future and let someone else ride the pony to the ground.

    • ROBwithaB

      Saudi Arabia, that country soon to be known as “the Saudi Arabia of solar”.

      • JamesWimberley

        Saudi Arabia is certainly the Saudi Arabia of giant vapourware solar projects – unlike the real ones of the Gulf states. Any news on this front?

        • ROBwithaB

          Qatar was making a lot of noise a couple of years ago, but haven’t heard much new since early last year.

    • neroden

      Yeppers, that scenario would be my bet.

    • wattleberry

      A chance for the deniers to put their money…….

    • Calamity_Jean

      Yes, this is clearly in line with the Greater Fool Theory of investing. (That’s “Whatever stupid investment you’ve made, there’s always a greater fool to take it off your hands.”) I expect in a few years to see a literal rush for the exit, as the Saudi royal family flees the country with most of the remaining money, to take up a comfortable exile somewhere else. Leaving ordinary Saudis thirsty, hungry, and poor.

      • ROBwithaB

        Kleptocrats living in “exile”, as if they’re somehow victiims. Being fawned over as royalty. Taking advantage of diplomatic immunity, and the type of power that a few hundred billion will buy you.
        And the hosts have very little incentive to expropriate the ill-gotten fortune and repatriate it to the poor and hungry back home.

        And what about all the pension funds worldwide that invest in this offering and then take a bath on it, eroding the savings of millions of people?
        The investment bankers who put the deal together, the brokers making the trades, and the fund administrators who are “incentivised” to get involved, all stand to make a killing.

        Everybody wins!

  • ROBwithaB

    Curiouser and curiouser….
    The world is being turned on it’s head.

  • JamesWimberley

    The move is incredibly badly timed, with low oil prices and the divestment campaign gathering strength. Five years ago, they could have got a good price. Now?

    An honest assessment of Saudi reserves would be a revolution. The general view IIRC is that the current numbers are political fiction.

    • Dan

      Sounds incredibly perfectly timed for the revolution away from oil. Couldn’t happen soon enough, right?Saudi Arabia is probably hoping to get a big cash infusion from the misperception that oil has a future so they avoid being stranded with worthless assets because they know the price of oil will never recover enough to make their investments worthwhile.

      • Bob_Wallace

        I suspect there are enough people who believe we’ll be using large amounts of oil for many years to come who will be willing to purchase a portion of SA oil.

        I’m sure SA has smart enough economists to let SA come out on top. Get a modest price for something that is likely to sell for a low price later on.

        Watch for oil stock to get promoted on right-wing media. That’s the perfect place to look for people who don’t have a clue about the transition which has begun….

        • ROBwithaB

          Maybe they could even spend some money to get one of their buddies in the Bush family into power.
          Then rustle up some “tension in the Middle East” and extend “the War on Terror” to a new theater of conflict somewhere, to create the perception that supplies are at risk. That’s bound to push up the oil price for a few years. Especially if it is coupled with aggressive policies to retard the progress of renewable solutions.
          Maybe buy a bunch of media time and lobbyists calling for “energy security”, and creating confusion about climate science and ridiculing the potential of a 100% renewable economy. (Or better yet, get the American taxpayer to fund most of this misinformation campaign, via poor research from the DOE and other federal bodies.)
          Pump as much oil as you can as quickly as you can, from paid-for infrastructure, thus demonstrating very large “profits”. Then extrapolate those profits 20 years into the future, enabling you to demonstrate a ginormous discounted Nett Present Value.
          Sell off your worthless stranded assets to a bunch of ill-informed, frightened people, for the benefit of a small clique of very wealthy people, at the expense of millions of regular people struggling to make ends meet.

          Nah, that’s just all crazy conspiracy talk, right? They’d NEVER try to get away with something like that, surely…..

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