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Page added on December 30, 2016

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Why Saudi Arabia Is Likely to Postpone a Huge Oil Company IPO

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Saudi Arabia’s oil producer, Saudi Aramco, is its crown jewel. And jewels ought not to be given away too freely.

The company’s initial public offering was meant to be the centerpiece of a new economic strategy designed to wean the country off its dependence on crude oil exports. But rising oil prices could make that financially less necessary, especially as Aramco is fraught with political sensitivity.

At the moment, Saudi Arabia needs all the money it can lay its hands on to replenish drained coffers. The kingdom posted a budget deficit of $79 billion in 2016, despite making deep cuts to public spending and pushing ahead with unpopular measures to reduce state subsidies. A quick sale of an oil giant would appear to help. Using the kingdom’s own claims of a $2 trillion valuation, just a 5 percent stake might raise $100 billion.

Yet Saudi Arabia’s painful austerity drive may not last. Oil surged after the Organization of the Petroleum Exporting Countries decided on Nov. 30 to make its first collective output cuts in eight years, raising expectations of a prolonged recovery. A sustained 20 percent year-on-year increase in average oil prices could be worth at least $23 billion in additional export revenue for Saudi Arabia, according to a Reuters Breakingviews calculation.

Selling a stake in Aramco could dilute some of the benefits of higher prices because the kingdom would presumably share the proceeds with outside shareholders. But only some of the proceeds. The vast majority of Aramco’s income from operating the world’s largest onshore oil field is siphoned off through a mixture of royalties and taxes enshrined in an opaque concession agreement.

That opacity is one reason the kingdom might want to hold off on an initial public offering. Aramco had originally planned to open its books for the first time in 2017 and provide an accurate updated figure on the kingdom’s total crude reserves as preparation for floating.

Yet it’s the mystery behind that undisclosed number that enables the Saudis to sway prices in the oil market so effectively. If rising oil prices make it less vital that the kingdom shares its secrets with the world, Aramco’s feted listing is unlikely to see the light of day.

NY Times



8 Comments on "Why Saudi Arabia Is Likely to Postpone a Huge Oil Company IPO"

  1. Dredd on Fri, 30th Dec 2016 5:52 am 

    smoke and fumes

  2. shortonoil on Fri, 30th Dec 2016 10:05 am 

    “Yet Saudi Arabia’s painful austerity drive may not last. Oil surged after the Organization of the Petroleum Exporting Countries decided on Nov. 30 to make its first collective output cuts in eight years, raising expectations of a prolonged recovery.”

    WTI Yearly Average

    2013…$97.98
    2014….93.26
    2015….48.67
    2016….43.07 (less 2 days)

    Hope springs eternal, if one is willing to believe anything that the latest snake oil salesmen has to peddle!

  3. geopressure on Fri, 30th Dec 2016 10:09 am 

    You do not think that Oil Prices are going up in 2017?

  4. Casual Viewer on Fri, 30th Dec 2016 12:30 pm 

    Total, Shell, Chevron and Exxon produce about 12.5 million barrels a day. Their collective value is about 950 billion dollars based on share price.

    Saudi Aramco produces about 10 million barrels a day and the Kingdom thinks its worth 1.2 trillion.

    Share Price has a lot to do with tax regulations as well as assets and production of goods.

    Either way it looks like a scam and anybody who buys shares is taking big risks .

  5. Truth Has A Liberal Bias on Fri, 30th Dec 2016 12:37 pm 

    Talk of selling shares and reforms was all just hype to loosen up the investors interested in buying Saudi bonds.

    If you have a goose that lays golden eggs you don’t sell it, or any part of it, you sell the golden eggs. Same scam with Rosi and his ecat. If it was real Rosi would be selling electricity, not magic electricity generators.

    Saudi Aramco will never sell shares.

  6. Go Speed Racer on Fri, 30th Dec 2016 1:07 pm 

    I have an E-cat running over at my
    lake property. Installed in the basement.

    Produces unlimited free power,
    so I disconnected from the grid years ago.

    It’s way better than those unsightly solar panels.
    Everybody should buy one.

  7. shortonoil on Fri, 30th Dec 2016 4:48 pm 

    “You do not think that Oil Prices are going up in 2017?”

    Why would the price go up? The inventory situation has not changed, it has gotten worse, and that is why it fell to begin with. The situation came about because of over supply, and that has not changed. The real crisis will begin when some producer somewhere shuts down because they can’t find a market for their production. The equations say that has is very likely to happen within the next couple of years.

    http://www.thehillsgroup.org/

  8. Kenz300 on Sun, 1st Jan 2017 8:57 am 

    Investments are moving away from fossil fuels.

    Wind And Solar Now Cheapest Unsubsidized Electricity Sources In The U.S. – First Solar, Inc.

    http://seekingalpha.com/article/4031497-wind-solar-now-cheapest-unsubsidized-electricity-sources-u-s

    World Energy Hits a Turning Point: Solar That’s Cheaper Than Wind – Bloomberg

    https://www.bloomberg.com/news/articles/2016-12-15/world-energy-hits-a-turning-point-solar-that-s-cheaper-than-wind

    Solar cheaper than natural gas and coal.

    Climate Change will be the defining issue of our lives.

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