Published: Wed, November 06, 2019
Markets | By Otis Pena

Saudi Aramco: the oil colossus

Saudi Aramco: the oil colossus

"Today is the right opportunity for new investors to reap the benefits of Aramco's ability to achieve value, and boost it on the long-term", Aramco chairman Yasir al-Rumayyan told a news conference on Sunday at the company's headquarters in the eastern city of Dhahran.

Confirmation of the share sale in Saudi Arabian Oil Co, or Aramco, as the oil giant is usually known, comes about seven weeks after crippling attacks on its oil facilities, underlining Saudi Arabia's determination to push on with the listing regardless.

August 22, 2018 Saudi Arabia scraps plans for the domestic and worldwide listing of Aramco and advisers working on the listing have been disbanded as the kingdom shifts its attention to buying a stake in SABIC, sources said.

Aramco did not give a time frame or say how much of the company it would sell, but sources have told Reuters the oil company could offer 1%-2% of its shares on the local bourse, raising as much as $20 billion-$40 billion.

Plans for the decision were first announced in 2016 as part of Saudi Arabia's Vision 2030 economic overhaul programme but have been delayed a number of times.

But those dry-as-dust business phrases have kicked off a process that could transform the lives of Saudi Arabia's citizens and residents, the worldwide energy industry and the world of high finance.

The percentage of shares to be sold and the purchase price would be determined after the book-building period - a process determining investor demand for shares - it added in a statement.

Aramco had initially been expected to sell a total of five percent on two exchanges, with a first listing of two percent on the Tadawul Saudi bourse followed by a three per cent listing on an overseas exchange.

But amid reports that it was struggling to get big institutional investors on board, Rumayyan indicated that the highly anticipated plans for the second stage had been put aside. "If we consider an global listing, it will be in the future".

Aramco has its origins in a 1933 concession agreement signed by the Saudi government with the Standard Oil Company of California.

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March 30, 2017 Saudi Aramco formally appointed JPM, Morgan Stanley and HSBC as global financial advisers for its IPO, sources familiar with the matter tell Reuters. It was the most profitable company in 2018, with profits of $111 billion-equal to profits reported by USA giants Apple, Google and Exxon Mobil combined.

Another wrinkle in the crown prince's plan is the surge in anti-fossil fuel sentiment around the world, plus the comparatively low oil price compared to late past year, where prices were above $80.

Last week, Energy Intelligence cited sources as saying they expect the Saudis to settle on a valuation of $1.6 trillion to $1.7 trillion.

If confirmed, that would imply the kingdom is ready to accept a compromise of less than the $2 trillion that Prince Mohammed has long insisted the state oil giant is worth.

It remains to be seen whether Saudi Arabia is able to find "a compromise between the crown prince's stated preference and market realities in their valuation of Aramco", said Kristian Ulrichsen, a fellow at Rice University's Baker Institute in the United States.

The IPO is created to turbocharge Mohammed's ambitious economic reform agenda by raising billions to build non-energy industries and diversify revenue streams.

Riyadh is looking to list a 1-2 percent stake on the Saudi stock market to raise at least $20bn-$40bn.

However, Aramco executives have encountered scepticism among institutional investors in London and NY on questions about the firm´s transparency, governance practices and targeted valuation, sources have told AFP.

The firm's shares would be traded on the Saudi Stock Exchange, or Tadawul, Aramco president and chief executive officer Amin H. Nasser said in an online video.

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