Aramco IPO Seen by Prince as Tonic for Saudis `Addicted' to Oil

  • Aramco's valuation to exceed $2 trillion: Prince Mohammed
  • Share sale could be world's largest initial public offering

Saudi Arabia's Hope for the Future in 'Vision 2030' Plan

Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman said he expects the value of Saudi Arabian Oil Co. to exceed $2 trillion as the kingdom prepares to sell part of the company in what could be the world’s largest initial public offering.

The valuation of the oil producer known as Saudi Aramco hasn’t been completed, Prince Mohammed said in an interview with Saudi-owned Al Arabiya television. The government plans to turn Aramco into a holding company and will sell less than 5 percent of that entity, he said. Aramco units may be offered for sale at a second stage, he said.

“Only the oil reserves could be worth about $2.5 trillion at $10 oil price, so a valuation of $2 trillion for all of Saudi Aramco is quite cheap,” Danilo Onorino, an energy-focused portfolio manager at Dogma Capital SA, said from Lugano, Switzerland. “Add to that the fact that Aramco pays almost no taxes, has the world’s lowest operating costs and has very cheap cost of financing.”

Mohammed bin Salman

Source: Saudi Arabia’s Royal Court

Prince Mohammed is leading the biggest economic shakeup since the founding of Saudi Arabia in 1932, with measures that represent a radical shift for a country built on petrodollars.


2030 Vision

Saudi Aramco’s sale is a key part of the “Saudi 2030 Vision” announced Monday to overhaul the economy and reduce the kingdom’s reliance on oil. It will help increase transparency, he said.

“If Saudi Aramco is listed then it must announce its statements and it will do that every quarter,” Prince Mohammed said. “It will be under the supervision of all Saudi banks, all analysts, all Saudi thinkers. Even more, all international banks and research and planning centers in the world will monitor it intensively.”

Aramco’s crude reserves of about 260 billion barrels are almost 10 times those of Exxon Mobil Corp. Its daily production of more than 10 million barrels is more than the domestic output of every U.S. oil company combined.

Sovereign Fund

“Today, we see a more purposeful Saudi Arabia with whom we will be a partner as it prepares for a future not dependent on oil,” General Electric Co. Chief Executive Officer Jeffrey Immelt said in an e-mailed response to a request for comment. GE supplies Aramco with equipment including gas turbines.

Saudi Arabia can achieve “our national vision” even if the price of oil falls to less than $30 a barrel, Prince Mohammed said. Benchmark Brent crude was trading Tuesday in London at more than $45 a barrel.

“We believe that it is nearly impossible for crude to drop below $30 given the current demand in the world, but this vision will be achieved whether the price is $30 or $28 or $70,” he said at a news conference broadcast later Monday on state television.


Special Report: Where Next for Saudi Arabia?

saudi

The remaining Aramco stake not sold in the IPO, and which is now held directly by the government, will be transferred to the country’s sovereign-wealth fund. The fund would have an additional $300 billion of assets excluding its holdings in Aramco, the prince said at the news conference.

“We have become addicted to oil in the Kingdom of Saudi Arabia, and this is dangerous, it has blocked the development of many sectors in the past years,” Prince Mohammed said. “In 2020, I think we will be able to live without oil. We will need it, but we can live without it.”

‘Many Obstacles’

Jason Tuvey, an economist focusing on the Middle East at Capital Economics Ltd., challenged that assertion. The investment income from the Public Investment Fund will still come largely from Saudi Aramco, Tuvey said from London. “Aramco at the end of the day is a big oil company, so the government’s revenue will still essentially be dependent on oil,” he said.

The prince acknowledged that “very many obstacles” stand in the way of a successful share sale. “One of them is convincing Saudis that Aramco is not part of our doctrine, it’s an investment,” he said at the news conference. “But when you explain the issues to them in a clear way, with clear planning, and clarify to them the benefit, many are convinced, as happened today.”

Prince Mohammed said Saudi Arabia has “huge” mining assets it can use to create jobs. The country has 6 percent of global uranium reserves, which is “another oil that we have not exploited,” he said. Saudi Arabia uses only 3 to 5 percent of its mining resources such as gold, silver and phosphate, he said.

(An earlier version of this story corrected the spelling of economist Jason Tuvey’s name in 11th paragraph.)

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE