Saudi Aramco Confirms "World's Most Valuable Company" May Go Public

Tyler Durden's picture




 

On Thursday we explained the upcoming IPO of the world’s most valuable company: Saudi Aramco, Riyadh's state-owned crown jewel that’s the world’s most prolific crude producer.

The move comes as Saudi Arabia burns through cash and takes on debt in a desperate attempt to plug a yawning budget hole created by the largely self-inflicted pain from "lower for longer" crude.

Pressured by declining oil revenue, the cost of financing multiple regional proxy wars, and the necessity of maintaining costly subsidies for everyday Saudis, Riyadh is apparently resorting to what we called “a stunning Hail Mary”: privatization.

On Friday, the kingdom confirmed it's mulling plans to sell a stake in the company. Here’s the official statement:

Saudi Aramco confirms that it has been studying various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the Company’s shares and/or the listing of a bundle its downstream subsidiaries.

 

Once the study of these various options is complete, the findings will be presented to the Company’s Board of Directors which will make its recommendations to the Saudi Aramco Supreme Council.

 

This proposal is consistent with the broad and progressive direction pursued by the Kingdom for reforms, including privatization in various sectors of the Saudi economy and deregulation of markets, which the Company strongly supports.

 

Saudi Aramco would like to emphasize that this process will strengthen the Company's focus on its long term vision of becoming the world’s leading energy and chemical enterprise. This includes prudently managing the Kingdom’s hydrocarbon resources, adding value across the value chain, reliably meeting its customers’ demand, and meeting its stakeholder and environmental commitments. 

As we noted before, "Aramco has the largest known oil reserves at around 261bn barrels – almost 10 times more than Exxon Mobil." 

In order to get an idea of the sheer magnitude, consider the following chart which shows that when it comes to crude, no one does it like Riyadh:

Some more thoughts from RBS analysts this morning, which largely coincide with our own noted previously:

Saudi Arabia is reviewing an Initial Public Offering of the country’s national oil company Aramco, said Saudi Arabia’s Deputy Crown Prince and Defence Minister in an interview with the Economist. Saudi Arabia is currently the world’s largest producer of oil (10m barrels of oil per day), and Aramco has the largest known oil reserves at around 261bn barrels – almost 10 times more than Exxon Mobil. With Aramco’s total value likely to run in the “trillions of dollars” according to Saudi officials, the Saudi government’s discussion to sell a stake in its crown jewel is in order to plug the country’s fiscal deficit which has widened significantly as oil prices dropped 70% in 18 months (the Saudi economy is heavily reliant on oil, which accounted for 78% of its total exports in 2014). The government reported a fiscal deficit of $98bn in 2015 (15% GDP), and expects a deficit of $87bn in 2016 despite planned budget cuts.

 

Saudi’s firepower seems less impressive when compared with its fiscal deficit. In his interview with the Economist, Saudi Arabia’s Deputy Crown Prince alluded to the country’s significant firepower to combat lower government revenue from weaker oil prices; these include low government debt, high foreign reserves and the potential sale of national assets. However, at a budget deficit of around $87bn, the Saudi government may quickly deplete its available firepower; the country could burn through its foreign reserves or reach debt to GDP of 100% in around 7 years. In an environment of lower for longer oil prices, the government will need to look for more lasting solutions to its deficit problem and we therefore expect further budget cuts through lower subsidies and higher taxes.

 

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Fri, 01/08/2016 - 08:49 | 7016359 RSDallas
RSDallas's picture

Never!   This is one of the most corrupt countries on the planet.  Do you think that they are going to subject themselves to the level of transparency that would be required?   Never!

Fri, 01/08/2016 - 08:50 | 7016363 ToSoft4Truth
ToSoft4Truth's picture

 

Effectively, The Kingdom is the IPO.

 

This is a type of poison-pill for the Kingdom. After they go public, we investors will not bomb them because we'll be bombing our investment.

Fri, 01/08/2016 - 17:43 | 7019215 flacorps
flacorps's picture

Ask the nazis how that worked out for them.

Fri, 01/08/2016 - 08:52 | 7016372 silverer
silverer's picture

Maybe you can do OK with the stock, but you will be funding terrorism.

Fri, 01/08/2016 - 08:57 | 7016402 Niall Of The Ni...
Niall Of The Nine Hostages's picture

One more time---the IPO comes when the firm's glory years are behind it.

Prince Mohammed, the real king of Saudi Arabia (King Salman is senile and completely controlled by his son) is beginning to grasp the gravity of his situation.

Saudi Arabia has little hope of winning the war his predecessors started with Russia. Mohammed can expect no quarter from whatever Moscow appoints to replace him.

North America is once again self-sufficient in oil, and the peoples of the Christian world move closer every day to open revolt against Islam. Riyadh cannot rely on American protection forever. 

Even before the current crisis, Saudi's oil reserves were greatly exaggerated. They probably had 15 years worth of oil left, max.

No wonder Wall Street want equity. They want a yield on their Saudi investment reflecting the fact that the very continued existence of the Kingdom is in serious doubt right now.

Fri, 01/08/2016 - 09:01 | 7016423 Secret Weapon
Secret Weapon's picture

Won't be worth shit once Vlad is done with them.  He has a long memory.

Fri, 01/08/2016 - 09:01 | 7016424 The Iconoclast
The Iconoclast's picture

Charles Ponzi sends his regards.

Fri, 01/08/2016 - 09:24 | 7016527 Panic Mode
Panic Mode's picture

How many beheaded dividends come with each share?

Fri, 01/08/2016 - 10:04 | 7016773 Cthonic
Cthonic's picture

Something is rotten in the House of Saud

Fri, 01/08/2016 - 10:16 | 7016846 paint it red ca...
paint it red call it hell's picture

Now there is a opportunity not often seen, shorting the IPO of the

"World's Most Valuable Company"
Fri, 01/08/2016 - 10:36 | 7016960 Jstanley011
Jstanley011's picture

This dog is going to be way overpriced on IPO due to pedigree. CL with a decent entry and a sane stop would be a much better way to play a possible spike in oil in a swing trade, which if the dollar tanks like Janet said she wants it to, looks likely to me.

Fri, 01/08/2016 - 10:52 | 7017071 cookies anyone
cookies anyone's picture

Anybody here that read Philip K. Dick and appreciates the irony with the name Aramco?

Fri, 01/08/2016 - 10:55 | 7017120 SmittyinLA
SmittyinLA's picture

Invest in fascism, I would if you could trust fascists, Islam will be renationalizing Arabia's oil fields shortly and any ownership disputes will be settled with Muslim mob rule.

Fri, 01/08/2016 - 10:57 | 7017134 flacorps
flacorps's picture

Apparently the story of Esau selling his birthright for a meal isn't in the Koran.

Fri, 01/08/2016 - 12:11 | 7017544 Sizzurp
Sizzurp's picture

Light sweet crude baby, I wish I could buy all of it.

Fri, 01/08/2016 - 12:21 | 7017583 Overflow-admin
Overflow-admin's picture

How is this shit better than ISIS oil?

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