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Saudi Aramco IPO

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Aramco Considers Going Public

Unread postby Pops » Fri 08 Jan 2016, 08:51:38

Aramco Considers Going Public
http://www.bloomberg.com/news/articles/ ... share-sale

Saudi Arabian Oil Co., the world’s biggest crude oil producer, confirmed it is considering a potential initial public offering.
The company, known as Aramco, is studying whether to list “an appropriate percentage” of shares of the parent or a bundle of “downstream” units, according to an e-mailed statement Friday. Once the review of these various options is complete, the findings will be presented to the company’s board of directors, which will make recommendations to Aramco’s Supreme Council.

Deputy Crown Prince Mohammed bin Salman said in an interview with The Economist published Thursday that the kingdom was considering an Aramco IPO as part of a broader package of economic reforms, comparing his plans to Margaret Thatcher’s shakeup of the U.K. economy in the 1980s. The company controls about 10 times the oil reserves held by Exxon Mobil Corp. and could be worth over $2.5 trillion, according Danilo Onorino, portfolio manager at Dogma Capital SA, a family office in Lugano, Swtizerland.

The IPO proposal is consistent with the kingdom’s direction for reforms, including privatization in various sectors of the Saudi economy and deregulation of markets, Aramco said in the statement. Bringing in investors would also strengthen the company’s focus on long-term growth and the prudent management of its reserves, according to the statement.
Dramatic Change
Aramco could rival Apple Inc., which has a market value of about $530 billion, as the world’s biggest listed company. Opening it up to investors would be the most dramatic change in the kingdom’s economic policy since it started nationalization in the 1970s. It is one of the key players in balancing the oil market and its investment decisions have the potential to move crude prices and affect economies around the world.
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Re: Aramco Considers Going Public

Unread postby GHung » Fri 08 Jan 2016, 09:02:10

As Greer mentioned this week in his comment section:
Oh, and before we go any further, word is that Saudi Arabia is looking at selling off part of its national oil company in an attempt to raise money. I trust I'm not the only one to smell absolute desperation...


Yeah, I'm betting the House of Saud is making other arrangements as well. "My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a limo in London."
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Re: Aramco Considers Going Public

Unread postby curlyq3 » Fri 08 Jan 2016, 09:11:32

The end is near.

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Re: Aramco Considers Going Public

Unread postby Cog » Fri 08 Jan 2016, 09:32:08

I'm investing balls deep if they offer an IPO.
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Re: Aramco Considers Going Public

Unread postby ROCKMAN » Fri 08 Jan 2016, 10:10:17

A few things about owning "shares" in ARAMCO. It may be a "public company" but it will be a public company privately controlled. Which isn't uncommon even in the US oil patch. Its operations will always be 100% controlled by the kingdom. Which means the kingdom decides on how its revenue is spent, the level of ARAMCO income since it will have sole control over the volume of oil it sells and, most important, what dividends in might, or MIGHT NOT, issue.

So a very simple and quite plausible scenario: ARAMCO sells 10% of its stock for $100 BILLION. And if it works as most IPO’s work the folks funding the initial stock purchase will sell to the secondary market: no…unless you can commit to the purchase of a few hundred $millions of the IPO you won’t be an initial purchaser. This is what companies like Goldman S does. So in the secondary market the hype pushes the values up to $120 BILLION. Guess who makes the $20 BILLION: GS et al.

So now you’ve stuck $200k of your retirement savings into ARAMCO stock. So what do you think your dividends will be next year? Let’s see the kingdom could allow an 8% dividend: after all they would get 90% of it with you and your et als getting 10% of it. OTOH the kingdom controls ARAMCO which means any income coming into ARAMCO is used to help the kingdom generate its share of income. IOW there’s no incentive to give any of the ARAMCO revenue to shareholders.

So now the only return you’ll get for investing in ARAMCO stock is selling it for more then you paid. Of course that’s no concern for GS et al: they’ve already pocketed their $20 BILLION. So let’s see how this looks now: you’ve invested your life savings into a stock that pays no dividends and have to wait for it to increase in value. And how much it increases in share price will be a function of not only future oil prices but what the kingdom might do to increase the share price. Of course if the kingdom has no plans to sell any of its treasury stock there’s not much incentive to push the stock price higher. OTOH if somehow the kingdom’s actions drive the stock price down they might be a potential buyer. But why would they buy any of the public owned stock: it pays no dividend and the kingdom still has complete control of the company by owning 90% of the stock. IOW any votes put before the shareholders would easily be won by the kingdom.

So bottom line: a bunch of folks collectively give many $BILLIONS to the kingdom/ARAMCO and nothing changes for the kingdom: ARAMCO still receives the same revenue to handle its operations (with much of that Apex being paid to service companies owned by the kingdom), the shareholders have no access to the ARAMCO accounting books. Oh, and of course, ARAMCO did get a $100 BILLION infusion of capex.

Far-fetched, you ask? Take a little time and research the history of the shareholder of Chesapeake. And then tell me the above scenario is unlikely. lol
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Re: Aramco Considers Going Public

Unread postby GASMON » Fri 08 Jan 2016, 13:02:50

Good post Rock

I wouldn't invest the snot from my nose in the Middle East.

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Re: Aramco Considers Going Public

Unread postby Keith_McClary » Fri 08 Jan 2016, 13:04:21

ROCKMAN wrote:ARAMCO still receives the same revenue to handle its operations (with much of that Apex being paid to service companies owned by the kingdom)

or Bin Laden, etc. And there will be a few thousand Vice Presidents who happen to be Saud princelings.

But if they have US shareholders, it becomes an "American interest", so the US military will have to protect it.

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Re: Aramco Considers Going Public

Unread postby pstarr » Fri 08 Jan 2016, 13:14:55

Cog wrote:I'm investing balls deep if they offer an IPO.
I'd be careful with those balls. They might end up in GS's pockets instead of your own lol
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Re: Aramco Considers Going Public

Unread postby Outcast_Searcher » Fri 08 Jan 2016, 13:26:36

For a state controlled IPO, will they be required to allow a verifiable audit(s) from reliable external source(s) to confirm the reserves they supposedly have scientifically?

If not, given the timing (why sell low?) -- IMO, it doesn't pass the credibility test. (They have plenty of financial reserves in their sovereign wealth fund, especially given the announced cuts in energy subsidies, to last MANY years with low oil prices -- so it's not like they "have" to do this).
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Aramco Considers Going Public

Unread postby Pops » Fri 08 Jan 2016, 14:01:27

Outcast_Searcher wrote:For a state controlled IPO, will they be required to allow a verifiable audit(s) from reliable external source(s) to confirm the reserves they supposedly have scientifically?

Bingo!
That was my first thought considering the never-ending-debate over stated reserves, paper barrels, etc.
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Re: Aramco Considers Going Public

Unread postby ROCKMAN » Fri 08 Jan 2016, 14:26:04

"For a state controlled IPO, will they be required to allow a verifiable audit(s) from reliable external source(s) to confirm the reserves they supposedly have scientifically?"

Of course I'm sure the king will gladly give over sovereign control of the kingdom the SEC regulators. lol.
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Re: Aramco Considers Going Public

Unread postby frankthetank » Fri 08 Jan 2016, 15:22:18

Is this a sign? Didn't Mexico open up their oil to outsiders now that their production is falling?
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Re: Aramco Considers Going Public

Unread postby ROCKMAN » Fri 08 Jan 2016, 15:38:56

frank - Not quite the same: what the KSA is thinking about would be the same as PEMEX doing an IPO. So are you ready to but $100,000 worth of stock certificates based on the idea that PEMEX will be worth a lot more in the future?

From 12 months ago: "The state-owned petroleum giant Pemex paid $9 million in 2011 to have an oil rig towed halfway round the world, from the United Arab Emirates to the Gulf of Mexico. When government auditors looked at the contract, they turned up some problems.

The rig had the wrong equipment for the assignment, according to a report by Mexican congressional auditors. And the tow job itself was a fiction: The rig didn’t need to be moved. It was already in the Gulf of Mexico.

The auditors alerted Pemex in February 2013, urging it to discipline the employees who handled the contract. Pemex did nothing. About a year later, an explosion aboard the rig killed two workers. The cause of the blast is still under investigation by Pemex.

The rig deal, a Reuters examination finds, is typical of the way Pemex and the government respond to widespread signs of fraud in the company’s vast contracting budget: by looking the other way.

Reuters identified more than 100 Pemex contracts signed between 2003 and 2012, worth $11.7 billion, that were cited as having serious problems by the Federal Audit Office of the lower house of the Mexican Congress. The allegations ranged from overcharging for shoddy work to outright fraud. The deals were worth about 8 percent of the $149 billion in Pemex contracts registered in Mexico’s federal contracting database in that period."
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Re: Aramco Considers Going Public

Unread postby Rod_Cloutier » Fri 08 Jan 2016, 22:57:10

Gail Tvelberg is predicting oil prices may fall below $10.00 a barrel this year:

http://ourfiniteworld.com/2016/01/07/20 ... upercycle/

The Archdruid might have pegged the end of the house of Saud correctly:

The Kingdom of Saudi Arabia is a fine example of a phemomenon all too familiar to students of history: a crumbling, clueless despotism which never got the memo warning that it couldn’t get away any longer with acting like a major power. The steady decline in the price of oil has left the kingdom in ghastly financial condition, forced to borrow money on international credit markets to pay its bills, while slashing the lavish subsidies that keep its citizens compliant. A prudent ruling class in that position would avoid foreign adventures and cultivate the kind of good relationships with neighboring powers that would give it room to maneuver in a crisis. As so often happens in such cases, though, the rulers of Saudi Arabia are anything but prudent, and they’ve plunged openly into a shooting war just over its southern borders in Yemen, and covertly but massively into the ongoing mess in Syria and Iraq.

The war in Yemen is not going well—Yemeni forces have crossed the Saudi border repeatedly in raids on southern military bases—and the war in Syria and Iraq is turning out even worse. At this point, the kingdom can’t effectively withdraw from either struggle, nor can it win either one; its internal affairs are becoming more and more troubled, and the treasury is running low. It’s a familiar recipe, and one that has an even more familiar outcome: the abrupt collapse of the monarchy, followed by prolonged chaos until one or more new governments consolidate their power. (Those of my readers who know about the collapse of the Russian, Austro-Hungarian, and Ottoman Empires at the end of the First World War have a heads-up on tomorrow’s news.) When that happens—and at this point, it’s a matter of when rather than if—the impact on the world’s petroleum markets, investment markets, and politics will be jarring and profound, and almost impossible to predict in detail in advance.

The timing of political collapse is not much easier to predict, but here again, I’m going to plop for a date and say that the Saudi regime will be gone by the end of 2016. That’s specific prediction #4.


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Re: Aramco Considers Going Public

Unread postby Plantagenet » Sat 09 Jan 2016, 00:57:51

Rod_Cloutier wrote:The Kingdom of Saudi Arabia is a fine example of a phemomenon all too familiar to students of history: a crumbling, clueless despotism which never got the memo warning that it couldn’t get away any longer with acting like a major power. ......in ghastly financial condition, forced to borrow money on international credit markets to pay its bills, while slashing the lavish subsidies that keep its citizens compliant.....they’ve plunged openly into a shooting war just over its southern borders in Yemen, and covertly but massively into the ongoing mess in Syria and Iraq.

The war in Yemen is not going well—Yemeni forces have crossed the Saudi border repeatedly in raids on southern military bases—and the war in Syria and Iraq is turning out even worse. At this point, the kingdom can’t effectively withdraw from either struggle, nor can it win either one; its internal affairs are becoming more and more troubled, and the treasury is running low. It’s a familiar recipe, and one that has an even more familiar outcome: the abrupt collapse of the monarchy, followed by prolonged chaos until one or more new governments consolidate their power......

The timing of political collapse is not much easier to predict, but here again, I’m going to plop for a date and say that the Saudi regime will be gone by the end of 2016. That’s specific prediction #4.

.
http://thearchdruidreport.blogspot.ca/[/quote]

How is that different from the USA? Same wars, similar incompetent and corrupt leadership, even more in debt .....
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Re: Aramco Considers Going Public

Unread postby seahorse3 » Sat 09 Jan 2016, 10:37:10

I won't invest, but I'll be interested in investors reporting the reserve and production numbers so we can finally quit guessing
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Re: Aramco Considers Going Public

Unread postby davep » Sat 09 Jan 2016, 10:55:26

The Kingdom of Saudi Arabia is a fine example of a phemomenon all too familiar to students of history: a crumbling, clueless despotism which never got the memo warning that it couldn’t get away any longer with acting like a major power. The steady decline in the price of oil has left the kingdom in ghastly financial condition, forced to borrow money on international credit markets to pay its bills, while slashing the lavish subsidies that keep its citizens compliant


I see a simple solution to this problem. Stop playing geopolitics and cut production, you idiots.
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Re: Aramco Considers Going Public

Unread postby Keith_McClary » Sat 09 Jan 2016, 13:53:03

davep wrote:I see a simple solution to this problem. Stop playing geopolitics and cut production, you idiots.

No, no, you don't understand how these things work. First hold the IPO when oil is $20 with most of the shares allocated to insiders so they get them at bargain prices.
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Re: Aramco Considers Going Public

Unread postby TheDude » Sun 10 Jan 2016, 15:07:36

Invest? Nah. I just want to read reports from shareholder's board meetings full of uncomfortable questions for the board of directors, or read glowing reports in their annual journal of how they've miraculously maintained the 263 billion barrel reserve number for the 30th year in a row.

Brazil opened up Petrobras to big gains so it can be done. Didn't exactly drown Brazil in oil though, at least not yet. Bet they're cutting back at the moment, too.
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Re: Aramco Considers Going Public

Unread postby Keith_McClary » Fri 15 Jan 2016, 14:18:22

In Saudi Aramco IPO Talk, Some See Age of Oil Coming to End
Bloomberg
January 15, 2016
...
But the reserves under the kingdom’s desert will be viable for decades even if world leaders have agreed to move away from fossils fuels in a bid to limit global warming.
...
To have even a 50:50 shot of keeping global temperature increases to 2 degrees Celsius, the goal set in Paris, more than two-thirds of current fossil fuel reserves will have to remain in the ground, according to a 2014 report by the Intergovernmental Panel on Climate Change, the world’s leading body of climate scientists. At current emission levels, the world’s “budget” for burning fossil fuels would be exhausted in less than 20 years.
Image
...
Assuming only the cheapest, easiest-to-reach oil is extracted in a scenario that caps temperature increases at 2 degrees Celsius (3.6 degrees Fahrenheit), about 7 percent of the Saudi company’s projects would be scuttled over the next decade, accounting for about $12 billion in capital expenditures, Leaton said in a phone interview.
“The majority of its projects would still fit within a 2-degree scenario,” Leaton said. Private-sector companies “have greater exposure to those high-cost projects at the wrong end of the cost curve: the oil sands, the deep-water, the Arctic and so-on. That’s where we see the pressure coming.”
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