Photographer: SeongJoon Cho/Bloomberg

Saudi Aramco May Open IPO to International Investors

  • Aramco to offer `economic value' in IPO, not oil reserves
  • Crude Oil Demand in 2016 to continue to grow at healthy rates

Saudi Arabian Oil Co. may open a potential share offering to international investors and confirmed that the kingdom’s crude reserves won’t be put up for sale.

Saudi Aramco, as the world’s largest oil business is known, is still considering “all options” in any future public offering, including the sale of shares internationally, Chairman Khalid Al-Falih said in an interview on Al Arabiya television. The company isn’t considering selling its oil reserves, he said.

“What will be offered is the economic value of Saudi Aramco and not its oil reserves,” Al-Falih said in the interview in Davos, Switzerland. “The oil reserves belong to the state. Therefore, we will offer the ability of the company to produce from those reserves.”

Saudi Aramco has announced it is studying options for a share sale. While one route is a full initial public offering, another is to list some of its subsidiaries, the company said in a statement earlier this month. Aramco pumps all of Saudi Arabia’s crude oil, with production at 10.25 million barrels a day in December.

Oil Recovery

Saudi Arabia sees crude oil prices recovering this year even if inventories remain high, Al-Falih said. Oil demand grew last year almost twice as fast as in 2014 and will keep rising at a rate of at least 1.2 million barrels a day this year, he said.

The kingdom isn’t targeting higher-cost shale oil producers by keeping its production high, and it wants to see a market in which supply matches demand, he said.

“We are not targeting shale oil producers at all,” Al-Falih said in the interview. “We want low-cost oil producers like Saudi Arabia to produce to a balanced market.”

Saudi Arabia raised prices for feedstock to petrochemical makers this year as part of reforms to reduce state spending and to narrow the fiscal deficit. Al-Falih said that even with the increase, local industries still pay lower feedstock prices than their international peers.

“When we raised the feedstock prices, we knew that the margin for producers will be squeezed but we looked at it as an incentive for them to enhance their efficiency,” he said.

Saudi Arabia is looking into privatization in all industries, and the government is moving forward with plans to sell shares in the Saudi Grain Organization, he said. Saudi Arabian Airlines and Saudi Railways Organization are next on the list of state companies up for sale, “when they become ready for this step,” he said. The health ministry is considering putting all public hospitals under the management of independent companies and turning some hospitals into non-profit foundations, said Al-Falih, who is also minister of health.

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