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What Is The Future For Saudi Aramco?
Submitted by Gaurav Agnihotri via OilPrice.com,
In a move that could shake up the dynamics of the global oil and gas industry, the desert Kingdom is restructuring its national oil company, Saudi Aramco.
With revenues of more than $1 billion per day, Saudi Aramco is easily the largest energy company in the world in terms of both production and company value. According to reports from Saudi Arabia’s Al Arabiya News Channel, the Saudi King is separating Saudi Aramco from the country’s powerful Oil Ministry. The restructuring plan, which was proposed by the King’s son, Deputy Crown Prince Mohammad Bin Salman, includes the creation of a Supreme Council of Saudi Aramco. The Deputy Crown Prince will head up the Supreme Council.
Why Restructure Saudi Aramco?
As the biggest global exporter of petroleum liquids, Saudi Arabia is considered by many as the undisputed king of oil and gas, as it possesses nearly 16 % of the world’s proven oil reserves. But it has a competitiveness problem, with the company’s operations often used to pursue political objectives. In 2014, Sadad Al Husseini, a former top executive at Aramco, said, “Aramco produces almost 9.5 million barrels a day, and if it needs to replace these reserves it needs to add almost 35 billion barrels of new reserves every 10 years. That's a very large challenge."
One of the biggest reasons for Aramco’s restructuring would be to become a more commercially-driven organization, whose aim is to maximize its financial value and compete directly with big oil firms on a global level. The separation from the Oil Ministry could reduce political meddling and provide more leeway for the company to make commercial decisions. Also, the restructuring of its oil ministry would signify a generational shift and create a new vision for how the government develops its future energy and economic strategies.
What Are The Consequences Of This Restructuring?
The restructuring of Aramco could change global oil and gas dynamics. The biggest energy company in the world may become even more aggressive in its oil exploration spending. According to Saudi Aramco’s 2014 annual report, “[t]he bulk of this spending (exploration and production) will be in our upstream activities to ensure we maintain adequate spare crude oil production capacity to help stabilize the world oil market whenever disruptions occur.”
By moving away from its oil ministry, Aramco will have the operational flexibility to pursue growth along commercial lines. Saudi Arabia is already producing 10.3 million barrels a day. If Saudi Aramco succeeds in increasing its production levels, it could exacerbate the glut in global supplies and push down prices. Aramco had earlier embarked on a $10 billion investment plan that prioritized the development of domestic shale gas resources. The company will likely pursue this more aggressively in the years ahead, using lessons learned from the US shale patch. That will allow the country to use more natural gas for domestic electricity purposes, freeing up more oil for export.
Saudi Arabia budget insulated from effects of low oil prices
Image source: EIA
Along with upstream growth, Saudi Aramco also has ambitious goals for its downstream sector. It is already the world’s sixth largest refiner. Along with its equity interests in domestic and international refineries, one of Aramco’s objectives is to become the second largest exporter of refined products after United States by 2017. The current restructuring could result in a formal division of its upstream and downstream business resulting in better financial and commercial control.
Who Stands To Gain The Most From This Move?
The service providers and international suppliers of Saudi Aramco could be the biggest beneficiaries of this restructuring as increased spending on exploration and production activities would mean more business for these players. Companies like Sembcorp Marine Limited, Keppel Corporation Limited and others could profit from the reshuffling. So far, more than 75,000 oil and gas jobs have been lost globally in 2015 due to volatile oil prices. Aramco has been one of the few companies that have actually increased their head count. One can expect the oil giant to step up its hiring process even further, especially in the E&P sector.
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They can always move into the head chopping business.
They are going to clean house! I'm telling you, heads are going to roll.
pods
Losses & Budget Shortfalls will be back packed by the slaves, always.
They're hiring.
https://news.vice.com/article/with-executions-on-the-rise-saudi-arabia-i...
I got a call from a headhunter just the other day.
1. Create market buzz
2. Borrow massive amounts of money for the 'new' company/global IPO offering.
3. Channel new streams of 'borrowed'/invested income into offshore entities.
4. Allow IS to destroy SA, and the chosen few flee to safe havens with the bank accounts codes.
5. IS controls the bulk of ME oil, China only gets what IS 'allows'.
Did I miss anything?
Yeah
1. Petrobras
1a. Taqa North.
2. EcoPetrol
2a. Pemex
Saudi Aramco will attract all the emerging market investor euphoria of Gazprom in the 90's and reserve sticker shock will be the sales point. They will make a large splashy IPO and land a fette in The Telegraph on the "new" London exchange mania. A bit later on, Saud will announce a cross listing to drum up foreign interest in the Saud stock exchange. Limited foreign ownership rules will lead to lopsided governance and an urge to cram on the debt.
revenues 1 billion a day!
OT: if you had a million bucks free and clear, and needed to live off it for the rest of your life, how would you invest it?
https://www.clintonfoundation.org/
Boom! Done.
pods
Uhm, you need to be a Tribesman to get your RoI there. Goys get a haircut...
Rental properties (single and multi family units) in middle-upper class neighborhoods that have a low percentage of future minority infiltration.
Dat's rayciss!
Hint: as a rule middle-upper class people don't rent...
Depends on how long you believe you will live.
Timing is everything!
1. Rent a Multiplex and live in one of the units. Then...
2a. YOU are the Property Management Company (PMC). Rent to people, whose background/culture aligns with a strong Work Ethic (i.e. no FSA, or Sec. 8 varmints who will abuse the place on an ongoing basis). IOW, YOU have screened and vetted your tenants, and you then "treat them right". I'm talking from experience, having owned properties out of state (Detroit) and used a PMC via remote control. Can't trust the tenants, can't trust the PMC from afar. No matter how good it looks on paper... What a fuxxxxg disaster! Never again!
2b. Install Vending Machines and mini-Laundromat for nice cash flow.
2c. Make sure that one of you Prime tenants is the Superintendent when you're away for extended periods, or rely on your smartphone plus trusted/proven General Contractor.
2d. Make sure you have a list of proven Service Providers (General Contractors, Plumbers, Electricians, Steam Cleaners, Roofers, CPA, RE Lawyer) on Speed Dial.
2e. Make sure you have Rainy Day Spare Cash for yourself and your business. Your biz budget needs to include Line Items for Monthly Maintenance & Repair, Property Taxes & Landlord Insurance, and annual CPA and Legal costs. Better to have spare cash (financial buffer), than to become 'Greece'.
In case you're also interested in saving money and cutting Costs...
3a. Have a Monthly Budget.
3b. Eliminate/Downscale your Transportation Costs to a small pittance, and remember (in the case of car, van or truck) that the Total Cost of Ownership (TCO) over the vehicle life, is what matters -- not the 'affordable' low-ball Entry Point.
3c. Have a Budget for your CIA (Conveniences, Indulgences and Appearances), and stick to it mercilessly. Be creative and witty with any face-saving excuses you might have to conjure up to your family, friends or lovers, which allows you to stick to your CIA and Master Budgets. Using this trick becomes your Safety Valve to release psychological pressure, i.e. the pressure to spend outside of your Budget.
3d. Don't let Opportunists (men, women, fair-weather friends) milk you for your money.
3e. Cut Costs to bare minimum. Buy what you need, not what your desires want. IOW... Reduce, Re-Use, Re-Purpose. Be creative, but don't turn into an anti-social weirdo or hoarder. Do monthly Meal Planning, and shop accordingly.
3f. Make Cash your BFF, as studies show that people who use Cash spend less -- especially if they have crisp bills in large denominations in their wallet. It's a LOT harder to break a crisp $50 than to swipe plastic. Especially if you leave Plastic at home (frozen in a block of ice in your freezer, where it's still accessible, but not w/o delay and effort, which allow for a cooling-off period before indulging in an irrational/impulsive purchase).
Great advice. But it looks like 3f is going extinct as an option for the reason's you mention. CAshless society encourages over spending, debt accumulation. Put's everyone's assets held hostage to the banksters when they want to take it down thus needing a bailout
I have a simpler plan. If it flies, floats, or fucks, rent instead of buying.
Wouldn't have to wait long for inflation to make a million spend like 100,000. Wait longer and that million might buy you a chicken. Or you could buy some BTC reinvest into mining equipment and generate a steady income of mining that will cover costs, put a reasonable salary in your pocket for keeping it running and reinvested plus it'll actually be worth something someday.
Fuck the US dollar.
Considering their wells are running out, their future looks dry.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel,"
-Rashid bin Saeed Al Maktoum
They'll all b eriding camels any year now.
Saudi worlds-most-generous government social services are underwritten with Saudi Aramco energy profits.
No restructuring is going to change that in any real way. And those real liabilities are going to crush Aramco competetiveness, no matter how you line them up.
Good luck with that.
People complain about Exxon and Chevron being mega-corps, but in terms of Market Cap, SA is 4 to 10 times larger than Exxon, somewhere from 1 to 3 Trillion in value.
Smart move. In 15 years the oil will be gone, and someone who isn't the House of Saud needs to be the one left holding the bag when that happens. So they're starting the privatization process now.
Call it the ultimate pump and dump....
Indeed...
this 'shake up' more reflects the internal struggles of the royal family. on the surface one might think 'who cares?'; but the tremors will be felt globally.
read this in line with what is happening in Bahrain, Gulf of Aden (ie Iran), Iraq, ISIS/DASH/ISIL, Putin & shale. btw, re-read that short list and realize why we are in so over our heads it is best to do a Vietnam. Duck, declare victory and get the hell out.
They make up their "proven reserves". This is the real politik to squeeze every dinar possible out of what thy have left. Especially since thy have trash oil to exploit alongside the black gold.
I'd actually be more worried about the size of the cave sitting under the entire MENA region that used to have oil in it, after pumping oil hard for a very long time. It's bound to be very large, very deep and judging how much care is put into mapping underground geology. The general size and locations it covers is unknown.
Maybe that is their plan to the population challenge. Extra people=free fill
There will be no effect on Saudi Aramco's competitiveness.
The company's number 1 cost in real terms is the Saudi entitlements program.
Whether these are billed as Royal Family Largesse or whether they are billed as corporate taxes won't make a dime's difference to the bottom line.
I suspect that Mohammed Bin Salman's view is that equity offerings can be made to assist the bottom line, while the Oil Ministry worries of loss of control.
I think the bottom line is that equity gains will be insignificant to the degree they are needed...meaning the market is driven by CB's and flight to safety. But that as the sovereign any hedge on equity control can be dismissed through share inflation later, at will.