State-owned behemoth could be worth as much as US$2.5 trillion
NEW YORK—Saudi Arabia may launch an initial public offering for the world’s largest oil producer, Saudi Arabian Oil Co., according to a report.
Deputy Crown Prince Mohammed bin Salman told The Economist that a decision will be made in the next few months. The crown prince is widely thought to hold considerable power in the monarchy and also heads the defence ministry.
“I believe it is in the interest of the Saudi market, and it is in the interest of Aramco,” he said.
Saudi Arabia is dealing with the economic punch declining oil prices have taken on the country. On Thursday pricing fell below $35 per barrel, its lowest point since 2004. There’s also rising tension between Saudi Arabia and Iran after the execution of a Shiite cleric and attacks on Saudi diplomatic posts in the Islamic Republic.
Fadel Gheit, analyst for Oppenheimer & Co., said an Aramco IPO “makes a lot of sense.”
Exxon Mobil Corp.’s market value is more than $300 billion, and Saudi Aramco produces three times as much oil, Gheit said. He figures Aramco could sell off a 20 per cent minority interest and raise $200 billion.
“That will fund their budget for a year,” he said.
The Economist said that options under preliminary consideration for Saudi Aramco range from listing some of its petrochemical and other refining operations to selling shares in the parent company.
But not everyone considers the IPO a done deal.
Larry Goldstein of the Energy Policy Research Foundation believes that the Saudis will back away from an IPO but that merely raising the possibility sends signals to their own people and the outside world.
“They are willing to explore things that they haven’t been willing to seriously consider before, including for the first time raising internal prices” for gasoline and diesel, Goldstein said. Within Saudi Arabia, the IPO comments are a signal “to those who have been living very comfortably off the government that things have to change,” he said.
Goldstein said that an IPO would not be likely to change the way that Saudi Aramco manages production and other aspects of its business.
Gheit agrees and believes that the Saudis would treat minority shareholders as just that. He noted that Saudi Arabia doesn’t let foreign oil companies own oil reserves in the country, treating them like contractors and not as partners or part-owners.
“Aramco is still going to be run like a government agency,” he said. “The ultimate goal is going to be basically fund the country’s budget.”
This story has been corrected to show that the name of the crown prince is Mohammed, not Muhammad.