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Saudi Aramco IPO

Discussions about the economic and financial ramifications of PEAK OIL

Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby pstarr » Sun 29 Jan 2017, 21:06:26

'Independent' says you, PlantedAgent. (not an accident Simmon's extended middle finger is just out of sight)
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Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby AdamB » Sun 29 Jan 2017, 21:25:39

pstarr wrote:'Independent' says you, PlantedAgent. (not an accident Simmon's extended middle finger is just out of sight)


How dare someone bring an accountant to a reservoir engineering fight!
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Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby pstarr » Sun 29 Jan 2017, 22:04:02

AdamB wrote:
pstarr wrote:'Independent' says you, PlantedAgent. (not an accident Simmon's extended middle finger is just out of sight)


How dare someone bring an accountant to a reservoir engineering fight!

How's your CV? Still interning at Chesapeake Energy?
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Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby charmcitysking » Mon 30 Jan 2017, 12:06:21

pstarr, this is peak oil - not 'nam. There are rules.
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Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby Zarquon » Mon 30 Jan 2017, 13:45:37

Your revolution is over, Mr. Starr! Condolences! The bums lost!

OK, enough now.
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Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby Plantagenet » Mon 30 Jan 2017, 13:51:45

Somewhere Matt Simmons is rolling over in his grave

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So Saudi really did have all the oil they said they had all along? Well I'll be darned!


--------------------

Of course lets not forget that Peak Oil isn't about reserves---its about production rate.

KSA might actually have ca. 270 billion bbls of oil reserves as this new private audit says, but once Ghawar production peaks and goes into decline ----which could happen any day now---- and the 5 millions bbls/day of oil production is lost, the Saudis are gong to have to really scramble to make it up.

Cheers!
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Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby onlooker » Mon 30 Jan 2017, 14:19:56

I am not sure the exact figures but Ghawar has already produced way more than it was originally estimated to be able to produce. Oh and yes Plant flow rate is important as is Net Energy. That is why the world relied so much on these giant oil fields that bequeathed light sweet crude. Considering this and how long they have been producing one has to wonder if their end is approaching
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Re: Saudi hires firm to assess their oil reserves for Aramco

Unread postby rockdoc123 » Mon 30 Jan 2017, 14:54:50

KSA might actually have ca. 270 billion bbls of oil reserves as this new private audit says, but once Ghawar production peaks and goes into decline ----which could happen any day now---- and the 5 millions bbls/day of oil production is lost, the Saudis are gong to have to really scramble to make it up.


It depends on what the 270 billion bbls refers to. If it is 2P then there is still reserves which need to be drilled but which have a relatively high chance of becoming 1P. Even based on current spare capacity of 12.5 MMB/d (according to Saudi Oil Minister in 2016 comments which is in line with what was predicted from the mega projects of 2006) and at a 6% post peak production decline at Ghawar the Saudi production could remain flat at current rates (~10.5 MMB/d) by replacing lost Ghawar production with spare capacity. That would last for about 7 years. But if there are additional reserves that can be upgraded to proved producing (which I suspect is the case) then that flat production could be extended based on new activity.

The latest I have read is that SA plans to list both on the London main exchange and the Saudi exchange. There was talk about listing on the NY exchange but that has been put on the back burner apparently due to the potential law suits from 911 surviving families. The London exchange has similar requirements to the NYSE and TSX regarding reserve reporting and they use the same published guidelines. A London listing is likely given the fact they chose to use the London office of GCA for their latest reserve audit. Note that being a public company Aramco will be governed by the same laws regarding transparency meaning they will need to report quarterly on production and will have to submit annual qualified person reports regarding reserves and adjustments. These are public documents so it is pretty hard to hide anything.

The idea that the Saudis are colluding with two of the largest reserve analysis and auditing firms in the world (Gaffney Cline and Associates and DeGolyer and MacNaughton) to falsely report reserves and pull one over on the London stock exchange with regards to an IPO is ridiculous, falling in the realm of conspiracy theories. Firstly the Saudis can't be paying those firms enough to have them jeopardize the rest of their business around the world (which it would if they were found to be doing this), secondly the firms would not risk being "served up" by Aramco if the London exchange pursued an investigation (this happened a number of years ago when Highland Capital sued Ryder Scott claiming that RS had used poor reasoning and overstated HC reserves to the SEC (Ryder Scott lost that decision), thirdly GCA and D&M are fiercely competitive and unlikely to agree on the time of day let alone a cooked up reserve report and finally all of the information will have to be public given Aramco will be a publically traded company.

As to pstarrs lunacy
Will investor dupes step up to the plate and buy this fabricated excuse of a lie?


If the price is set appropriately you can bet there will be a number of very large firms wanting a piece of this. Last year the major investment banks were lined up trying to get meetings with the Saudis in order to get a piece of the IPO. This will end up being the largest IPO ever resulting in the largest company worldwide by a huge margin. If the corporation pays dividends (and it probably will in order to be competitive with Exxon etc) it will be a classic blue chip investment. Listing on London exchange requires they have a fairly large float which will increase stock buying and selling activity as well. My prediction is the IPO is over subscribed over night. I'm sure there were lots of people who thought investing in companies like XOM when they first came out was a bad idea. That being said $100,000 invested in XOM in 1970 would be worth around $5 MM today.
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Saudi Aramco IPO

Unread postby M_B_S » Tue 07 Mar 2017, 06:28:52

http://energyfuse.org/saudi-aramco-ipo- ... c-critics/

Saudi Arabia’s recent overtures that it will list Aramco, the state-owned national oil company (NOC), in an initial public offering (IPO) is facing domestic criticism as the country embarks on a heated debate over the future of its immense oil reserves. In a Reuters article published last week, Saudi sources expressed discontent over the proposed plan by Deputy Crown Prince Mohammed bin Salman (MbS) to offer a reported five percent stake in Saudi Aramco, the world’s most valuable company.
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Normally the correct question is which Idiot buys the cat in the bag?

PEAK OIL!

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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby Subjectivist » Tue 07 Mar 2017, 10:10:13

I know it isn't really what you ment with your funny thread title, but the salt water is mostly separated and injected back into the formation to force more oil out.

He thing is, they are only offering to sell a 5 percent stake and if they ever do I expecy it to get divided up as 1 percent or less over multipke mutual funds. Highly doubtful any private investor would even get a shot at holding all of it.
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby ROCKMAN » Tue 07 Mar 2017, 10:50:06

In reality buying high water cut oil production is one of the safest investments out there...especially after an oil price crash. Remember this isn't a theoretical claim: the Rockman has been doing this off and on for 4 decades and has analyzed hundreds of such projects. Not only do such reservoirs have some of the slowest decline rates out there they are the most stable and thus easiest to ACCURATELY predict future production volumes. In comparison the riskiest to predict is a very large water drive reservoir producing 100% oil. In that case one has to make "life and death" assumptions about when the water production will begin and how fast it will increase. Small errors in that economic model can cost 100's of $millions. And in both situations there will always be the inability to accurately predict oil prices years into the future.

The other advantage in dealing with a mature water drive reservoir: you have already spent the capex for the oil/water separation and water disposal infrastructure. In a zero % water cut field you'll have to eventually pay for that capability while never being sure when that expense will hit you and how much it will cost.

All of which means evaluating the future value of such existing oil production in a US oil field is the most accurate scenario you'll deal with. But that's in the US where all that data is available. I seriously doubt we'll see such details from Aramco. They may offer some net revenue income figures but there will be no way to verify those numbers. The KSA might have an "independent" audit of its proved reserves but that tells you nothing about the net cash flow. But an even more important question no one has addressed yet: if you invest $50,000 in the Aramco IPO how much money will you make? IOW will there be dividends? There are many US oil pubcos that are paying nice dividends...and many others paying $ZERO dividends. Has Aramco announced what its stock will yield? And even if it does there are no regulations preventing any pubco from suspending dividends indefinitely. Of course one might make some profit from that $50,000 investment by selling the stock for more down the road. OTOH obviously no company can guarantee that possibility.

Bottom line: no one can calculate what a share of Aramco stock will be worth when the IPO is issued. Nor what it will be selling for at any point in the future and neither what dividends may or may not be paid in the future.
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby AdamB » Tue 07 Mar 2017, 11:17:55

M_B_S wrote:PEAK OIL!

M_B_S


Been there. Done that. Revi has the t-shirt.

And as long as folks will buy the salt water from Wilmington, they will certainly buy the millions of barrels of oil derived from the salt water from Ghawar.
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby rockdoc123 » Tue 07 Mar 2017, 16:40:29

Not only do such reservoirs have some of the slowest decline rates out there they are the most stable and thus easiest to ACCURATELY predict future production volumes.


the amount of work ARAMCO has done towards understanding reservoir dynamics eclipses anything I've ever seen including that by two of the multinationals. Everything you can imagine is input into their finite element model including the laboratory information they have regarding switching wettability through time. I can't imagine a less riskier prediction.

The other advantage in dealing with a mature water drive reservoir: you have already spent the capex for the oil/water separation and water disposal infrastructure.


This was all accomplished by ARAMCO in the period from 2005 through 2010 in their megaprojects where a massive amount of additional water and gas handling capacity was installed.

I seriously doubt we'll see such details from Aramco.


They will be listed on at least one of NYSE or London, both of which means they have transparency requirements the same as any publicly traded US company.

The KSA might have an "independent" audit of its proved reserves but that tells you nothing about the net cash flow.


well actually it does given the reserve report specifies economic runs over the remaining life of the reserves in order to arrive at NPV. That includes cashflow projections and is generally reported both before tax and after tax. And it isn't the KSA but rather ARAMCO that will be an independent company paying taxes to the Saudi Arabian gov't.

Has Aramco announced what its stock will yield?


Given they haven't even chosen a place to list or the firms which will run with the IPO it isn't surprising they haven't said anything. It's a process. When the IPO is announced the prospectus will outline the intial trading value of a share plus what dividend yield might be attached. I would be surprised not to see a dividend given the companies that don't have dividends are those that have considerable potential to grow further from where they are.

Bottom line: no one can calculate what a share of Aramco stock will be worth when the IPO is issued.
Well the firms running the IPO do just that, calculate the price for listing which is then agreed upon with the exchange. The list price will likely only be important to the major investment houses who will have likely picked up most of the initial offering. Whatever is left over as market float will almost certainly trade at a premium for a short time (there will be investors who want the shares as a long term investment) and then after a few days the arbs will move in and the price will retreat, possibly back to the initial offering price or potentially slightly lower. This is a fairly predictable pattern of trading for most IPOs.
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby ROCKMAN » Tue 07 Mar 2017, 17:33:48

doc - "Well the firms running the IPO do just that, calculate the price for listing which is then agreed upon with the exchange. The list price will likely only be important to the major investment houses who will have likely picked up most of the initial offering." You mean like the firms that set the price for the Snapchat IPO that lost several hundred $million in the first few days after opening?
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby rockdoc123 » Tue 07 Mar 2017, 23:06:07

doc - "Well the firms running the IPO do just that, calculate the price for listing which is then agreed upon with the exchange. The list price will likely only be important to the major investment houses who will have likely picked up most of the initial offering." You mean like the firms that set the price for the Snapchat IPO that lost several hundred $million in the first few days after opening?


I'm not sure which banks or investment houses were behind Snapchat. But as I said this is quite common with IPO's especially ones that are oversold prior to breaking on the market. There are few shares left beyond what the investment houses grabbed up and the price rises as there are lots of buyers who wanted in but couldn't get a piece of the action held by the big houses....so lots of buyers chasing few shares drives the price up well beyond the list. Snapchat closed today slightly lower than it listed and that is driven by short sellers who saw the precipitous rise having been driven artificially by initial demand (i.e. not reflective of value). As I said in another thread the investment houses value an IPO based on one or two analyses. The first is to look at the asset value which in the case of ARAMCO would be the NPV of their Proven reserves plus all hard assets such as plants, compressors, separators etc. The second would be to look at a similar sized company with respect to its market value or a combination of both. That value is taken forward to the exchange which could suggest the value is too high or too low. So if suddenly a share trades much lower than its IPO list price the stock is by definition undervalued unless there has been a recent event to drive the value lower.
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby ROCKMAN » Tue 28 Mar 2017, 09:53:27

Some may recall the Rockman pointing out the BIG QUESTION: what might shareholders get by buying into the IPO. Well, guess what tax rate Aramco was paying the KSA govt: 85%. IOW Aramco value WAS NOT a function of the billions of bbls of Saudi reserves but just a small portion. Just as I pointed out: estimating the asset value of Aramco based upon dubious reserves estimates was complete bullsh*t. LOL. As you read this press release think about it: once the KSA burns thru the monies it gets from the IPO and then looks at its reduced tax income do you think it might start increasing its cut? Just as the Rockman speculated months ago. Also note the tax is on the PROFIT: Aramco pays all the costs...monies that reduce the revenue available for the dividends:

Saudi Arabia slashed the tax rate paid by state oil producer Saudi Aramco, a key milestone in preparing the company for what may be the world's biggest initial public offering.

(Bloomberg) -- Saudi Arabia slashed the tax rate paid by state oil producer Saudi Aramco, a key milestone in preparing the company for what may be the world’s biggest initial public offering.

Aramco’s income tax, paid on the company’s profit, is being cut to 50 percent from 85 percent, Chief Executive Officer Amin Nasser said in an emailed statement. The centerpiece of plans to overhaul the economy of the world’s largest oil exporter, Saudi Arabia aims to sell as much as 5 percent of the company late next year in an IPO that the kingdom estimates could value the business at about $2 trillion.

“The new tax rate will bring Saudi Aramco in line with international benchmarks,” Nasser said. The new rate is effective retroactively from Jan. 1.

Reducing the company’s income tax payments by more than 40 percent will free up billions of dollars of cash flow that Aramco can pass on as higher dividend payments, a step seen as crucial to enticing investors to the IPO and maximizing the company’s valuation. It will also shake up the kingdom’s finances: the state relies on taxes on oil production for about 60 percent of government revenue."

OK number crunchers: what is a share of Aramco stock worth today? And in 5 years? And in 10 years?
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby Plantagenet » Tue 28 Mar 2017, 10:46:59

People think investing in Saudi is safe.

They have forgotten that Aramco used to be US owned before it was nationalized by KSA.

What is to prevent KSA from nationalizing Aramco again some time in the future after the stock sale is done?

And don't forget the Saudi monarchy isn't very popular in Saudi. If the monarchy topples, Aramco will be nationalized in a flash.

Fool me once---shame on you.

Fool me twice---shame on me.

Cheers!

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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby ROCKMAN » Tue 28 Mar 2017, 13:52:32

P - "What is to prevent KSA from nationalizing Aramco again some time in the future after the stock sale is done?" I'm not sure that would even be required. As the Rockman pointed out months ago: Aramco does not own a single bbl of Saudi oil...never did...never will. It is a production company with a contract to produce Saudi oil. As mentioned way back when such foreign oil concessions usually have a royalty tied to them. A royalty that may be separate from the taxable revenue.

A production contract we may never get to read. And as a corporation of some form it is subject to taxation by the Saudi govt as the news story points out. And if future tax rates can be subject to significant changes in the US they could easily change in Saudi Arabia. Aramco could even eventually be subjected to an "excess profit tax" should oil prices boom once more. After all an EPT came close to being passed into law a few decades ago under the democratic laws of the USA.

And in the KSA it would probably take only 1 vote: the king. I wonder how he would vbote? LOL.
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby ROCKMAN » Thu 30 Mar 2017, 14:36:46

OK, one more piece to the ever evolving answer as to what the future public company, Aramco, might be worth and, more important, what price its stock might garner. In addition to acquiring some uncertain (and so far not promised) portion of Aramco's NET INCOME, the new stock hoders are also buying into Aramco's new debt. From just yesterday:

Aramco pays premium in debut sukuk sale

* Aramco offering 25 bps over SAIBOR on 7-year sukuk

* Bond pays more than cheap March 2015 credit facility

* But oil prices, IPO also create uncertainty

"Aramco is paying a significant premium to the government {IOW Aramco is borrowing money from the Saudi govt...interesting, eh? and to its previous borrowing in its first sale of Islamic bonds, reflecting uncertainty over oil prices and an upcoming sale of the state-owned oil giant's shares. Aramco is offering 7-year, riyal-denominated sukuk at 25 basis points (bps) over the six-month Saudi Arabian Interbank Offered Rate (SAIBOR) to institutional investors, as the company diversifies its funding in line with Saudi Arabia's economic reforms. The private placement, part of a 37.5 billion riyal ($10 billion) Islamic bond programme, could be as large as about 6 billion, bankers told Reuters. It is expected to take place early next week. Aramco declined to comment.

Aramco is finding it significantly more expensive to issue debt than the Saudi government, whose last domestic issue of floating-rate 7-year bonds was sold at between 10 bps and 15 bps below three-month SAIBOR. {IOW the Saudi govt has been borrowing monies in the past...not Aramco}. It also looks more expensive for Aramco than the riyal component of a $10 billion-equivalent, dual-currency revolving credit facility signed in March 2015. That tranche included 1-year and 5-year portions, with the latter offering 11 bps over SAIBOR. As a debut issuer, Aramco, which has not obtained a credit rating, had been expected to pay some kind of premium. Also, the 2015 loan was priced unusually cheaply, reflecting the fact that it was an undrawn facility to be used as a "back-up", said one banker working on the Aramco sukuk deal."

So that leads to an interesting question: If Aramco has to borrow $billions to pay for its future operations will there be any free cash flow to pay dividends to the new shareholders? But, again, we still don't have enough of the details to even speculate. One of the big yet-to-be-published data is an accounting audit of Aramco's books. How much reserves sit under Saudi Arabia actually has no bearing on the value of Aramco so y'all can stop arguing about it. It seems that Aramco might not own the oil...the kingdom owns that oil. Aramco is a company that perhaps only has the right to produce and sell that oil but it doesn't belong to Aramco. What Aramco does appear to own is some portion of that future revenue from the sale of that oil. How much of that revenue stream has yet to be disclosed. But we've just learned that whatever the Aramco share has been the Saudi govt was taking 85% of it in taxes. And now the KSA is planning to reduce that tax rate to 50%. But we still don't know the details of how the Aramco GROSS REVENUE is determined. Again, something we'll hopefully see when the audit of Aramco's books is made public.
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Re: Aramco IPO or who buys the "salt water" in Ghawar?

Unread postby ROCKMAN » Fri 05 May 2017, 14:47:39

And again the Rockman didn't point out the obvious because, well it seemed like it should be obvious to everyone. To repeat what was posted in the PO News:

"Saudi Arabia will continue to have full control over the oil wells and production of Aramco...Deputy Crown Prince Mohammed bin Salman said on Tuesday."

We see many posts about the Saudi govt running deficits this days thanks to the decline of oil prices. But we've finally be given some insight to the financial relationship between the CORPORATION know as Aramco and the Saudi govt. So back to the question: what would Aramco IPO stock be worth? That should be a function of its A) NET INCOME and B) expectations of selling it at a higher price later.

So let's look at A: Aramco net income would be gross oil sales receipts - budget expenditures - taxes paid to the govt. As mentioned before then been not hint as to what the new shareholders would receive as dividends. Of course the Saudi govt would get 95% of those moneys. But let's set aside that 5% of an unknown/uncertain amount of revenue the kingdome is willing to give up.

Let's instead focus on the 35% of revenue it will sacrifice but reducing the rate on Aramco from 85% to 50%. So how much would that reduce the kingdom's her income. Of course, much of that could be recovered by receiving 95% of a significant dividend yield. But so then would the buyers of that IPO offering. IOW dividends would have equal that 35% of the income formally laid as taxes. Which would essentially be 35% of the gross income (less the Aramco budget) of selling around 3.5 BILLION bbls of oil per year...worth more then $120 billion per year. Or somewhere around $40 billion in dividends with about $2 billion going to the 5% non-govt shareholders.

Or less depending on Aramco's budget. And at the moment the stated Aramco plan is to spend $335 billion in the next 8 years. Or about $40 billion per year. Which means that if these numbers are close to being correct the Aramco NET income payable as dividends less it's budget expenses would be fairly close to ZERO.

Yeah, no hard numbers offered yet. But given the 1/3 of a $TRILLION Aramco plans to spend in the next 8 years and the 50% tax rate the govt will collect from it during those 8 years there doesn't appear to be a hell of a lot net/net revenue to payout in dividends to the shareholders even if Aramco promises to pay, say, a 7% yield since 0.07 X not much = to a lot less then "not much".

The Rockman is actually very excited to see what the Aramco stock sells for, how much dividends are paid and how those stock prices fair after the first up year or so. Kinda like the difficulty of averting your eyes as you witness a train wreck. LOL.
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