Saudi Arabia is considering a stock market listing for its national oil group – the world’s biggest energy company and probably the most valuable company on the planet.
Saudi Aramco is a highly secretive organisation but is likely to be valued at well over $1tn (£685bn). Any public share listing would be viewed as a potent symbol of the financial pain being wreaked by low prices on the world’s biggest crude exporting country.
Prince Muhammad bin Salman, the country’s highly influential deputy crown prince, confirmed in an interview on Monday with the Economist magazine that a decision would be taken within months whether to raise cash in this way, even as oil company shares are depressed at this time.
“Personally I am enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around.”
The sale via an initial public offering (IPO) of any part of Saudi Aramco would be a major change in direction for a country, which has jealously guarded its enormous – and cheaply produced – oil reserves. Aramco’s reserves are 10 times greater than those of Exxon, which is the largest publicly listed oil company.
The prince, considered the power behind the throne of his father King Salman, is keen to modernise the largely oil-based Saudi economy by privatisation or other means but it also needs to find money.
The country is under pressure, with oil prices plunging to their lowest levels in 11 years and more than 70% below where they were in June 2014. This has put huge strain on Saudi public spending plans, which were drawn up when prices were much higher and pushed the public accounts into deficit.
Prince Muhammed, however, denied that the country was facing an economic crisis: “We’re too far from it. We are further than the 80s and the 90s. We have the third-largest reserve in the world. We were able to increase our non-oil revenues this year alone by 29%,” he said.
Industry experts point out that the Saudis have partly been the architects of the low oil price environment as they refuse to cut back output in a fight a turf war with their rival US shale producers. Some question whether this strategy could change in the run-up to any Aramco IPO.
He was happy for the Economist to depict his planned new policies as Thatcherite, saying he was “most certainly” wanting to follow the free market economic path the former UK prime minster had pioneered.
Western oil companies including Shell, BP and ExxonMobil may be very interested in an opportunity to buy into Saudi Aramco – even when their own balance sheets are being stretched by a collapsing crude values.
But other state-owned petroleum groups, from China and elsewhere, would also be keen to take a stake in a company that controls more than 260bn barrels of reserves.
Saudi Aramco produces all of Saudi’s 10.25m barrels a day, which is more than double that of Exxon and Rosneft in Russia.
The Saudi prince, who is also the defence minister, said it was right of his country to suspend diplomatic relations with fellow Opec member and regional power rival Iran, but played down any prospects of physical conflict.
He said: “A war between Saudi Arabia and Iran is the beginning of a major catastrophe in the region ... For sure, we will not allow any such thing.”
The mounting war of words between Riyadh and Tehran could have been expected to put upward pressure on crude prices. Middle East tension usually raises oil trader fears that production or transport could be hit.
But in recent days the direction of travel for prices has only been downwards as sentiment concentrated on increasing supplies and weakening demand. The US has released new figures showing shale output growing, while Chinese economic data all points to further factory slowdowns.
(The Guardian)
