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Saudi retreat on oil IPO highlights dearth of reliable information on world oil reserves

Saudi retreat on oil IPO highlights dearth of reliable information on world oil reserves thumbnail

Since late 2016 the financial media has been abuzz about what would likely be the biggest initial public offering (IPO) ever: The sale of 5 percent of the world’s largest oil company, Saudi Aramco, which is wholly owned by the government of Saudi Arabia. The IPO with its required disclosures would shed light on the inner workings of the company for the first time since it was nationalized in 1980 and lead to independent verification of its oil reserves and other assets.

It would be a large first step in unmasking the murky world of national oil companies (NOCs), the reserves of which are thought to represent 90 percent of the world’s total reserves of oil and natural gas according to one estimate.

With estimates that Saudi Aramco is worth $2 trillion, the sale of 5 percent to public shareholders potentially represents $100 billion, a valuation that would make such an IPO an all-time record and result in roughly $1 billion in fees for the lucky bankers handling the deal.

All that anticipation, however, has now come crashing down as the Saudi government seeks the funds it might have gotten from an IPO through other avenues. So, what happened?

First, oil prices rose significantly. When the Saudi government officially confirmed that it was seeking an IPO for Aramco in October 2016, Brent crude, the world benchmark, averaged just under $50 per barrel that month. While the IPO was being considered earlier that year, oil had dropped below $30. Last week it closed just below $75.

The government was thought to be desperate to reduce its rising deficits—due in large part to a precipitous drop in oil prices—by selling a part of the company. That seems an unlikely reason for the sale since the Saudis have ample money in a sovereign wealth fund and substantial credit with major banks. The stated reason was a plan to diversify the Saudi economy.

With oil prices 50 percent higher than when the plan was proposed, rising revenues may be sufficient to justify waiting and may be able to provide investment funds for other purposes. (The Saudi government finances itself largely from oil revenues.)

Second, it’s possible the Saudis now believe that investors would not be willing to pay as much as the Saudis want for a variety of reasons that include:

  • Concern about the stability of the Saudi regime (with whom investors would become business partners).
  • The high taxes and royalties paid by the company to the government.
  • The lack of diversification because almost all of Aramco’s operations are in Saudi Arabia and thus subject to upheavals and conflicts in the Middle East.
  • The role of Saudi Arabia as an OPEC member and as the world’s largest swing producer which leads it to adjust its output for geopolitical reasons and not merely to maximize profits for the company.

These are merely a sampling of concerns discussed in the media.

But, I believe that perhaps the most important reason the Saudis are reconsidering the IPO is that the government simply does not want to subject the company to an independent audit that would for the first time since 1980 determine whether the country has been telling the truth about its oil reserves.

Saudi Arabia must have significant remaining reserves in order to pump at rates that make it the number one or number two producer in the world, alternating with Russia for the top position. But that doesn’t really tell us the relative size of Saudi reserves since Russia claims less than a third of the reserves that Saudi Arabia does and yet produces nearly the same amount of oil on a daily basis.

Despite the fact that one of the world’s largest producers of oil has not been audited in 38 years, official sources of energy information such as the U.S. Energy Information Administration and the International Energy Agency have been taking Saudi Aramco’s public claims about its reserves at face value and including them in their official statistics.

In fairness, what choice do these agencies have? They have no standing or power to compel an independent audit.

It might not be so bad if Saudi Arabia were the only case of this. But wherever there exists a government-owned oil company that monopolizes oil development in a nation, there is likely to be secrecy about reserves. The national oil companies of Iran, Iraq, Kuwait, and Venezuela represent some of largest corporations in the world. But because they are not publicly traded, they are not subject to the kind of scrutiny that large international companies such as ExxonMobil and Shell are. Wikipedia provides a lengthy list of NOCs demonstrating just how far the shroud of secrecy extends across the industry.

(Of course, not all these companies escape scrutiny. For example, the Argentine national oil company, known as YFP, in which the government holds a 51 percent stake, is traded on the New York Stock Exchange and thus required to adhere to disclosure and audit standards for listed companies. But most national oil companies are not publicly traded.)

The recent retreat of Saudi Arabia from its planned IPO is not only an important financial event. It’s an important informational event in that it highlights the opacity of the world’s oil producers. It should remind us that the numbers we accept from major governmental and international organizations regarding oil reserves worldwide are largely based on unverified sources, namely, the word and only the word of most of the world’s national oil companies.

That we continue to plan our futures—our cities, our transportation systems, or industrial developments—based on such numbers should be a cause for alarm and not the complacency we are currently exhibiting.

By Kurt Cobb Resource Insights



20 Comments on "Saudi retreat on oil IPO highlights dearth of reliable information on world oil reserves"

  1. Cloggie on Sun, 29th Jul 2018 2:57 pm 

    Oil reserves, yawn.

    Sunshine State California has too much solar power, hence storage has become a necessity.

    Enter the Hooverdam, that is about to become “two-way”:

    http://www.spiegel.de/wirtschaft/soziales/usa-los-angeles-will-hoover-damm-in-riesenbatterie-umbauen-a-1220703.html

    Altitude difference water level Hoover dam and secundary bassin: 200m

    Cost: 3 billion.
    Operational: 2028
    Storage cost: 15 cent/kWh

    With that date in mind, this storage facility could be the largest in Mexico.

    https://cleantechnica.com/2018/07/26/city-of-los-angeles-wants-to-turn-hoover-dam-into-worlds-largest-pumped-energy-storage-facility/

    By 2028 the Mexican president will paraphrase the 2016 words of candidate DJT: “we made the Americans pay for it”.

  2. MASTERMIND on Sun, 29th Jul 2018 3:13 pm 

    Saudi Arabian oil reserves are overstated by 40% – Wikileaks
    https://www.theguardian.com/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

  3. MASTERMIND on Sun, 29th Jul 2018 3:15 pm 

    Clogg

    Solar power produces electricity and oil is used for transportation..

    There is no transition – it’s marketing. The ratio of fossil / renewable has stayed about the same over time.

    You also can’t “transition” transportation. It requires liquid fuels. And, even if we could build batteries capable of storing as much energy as gas, now we have the same problem, only we’re talking about other materials instead of oil.

  4. MASTERMIND on Sun, 29th Jul 2018 3:16 pm 

    Clogg

    Renewable energy ‘simply won’t work’: Top Google engineers
    http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_work_google_renewables_engineers/

    Bill Gates: We need global ‘energy miracles’
    http://www.cnn.com/2010/TECH/02/12/bill.gates.clean.energy/index.html

    Solar and Wind produced less than one percent of total world energy in 2016 – IEA WEO 2017
    https://www.iea.org/publications/freepublications/publication/KeyWorld2017.pdf

    UC Davis Peer Reviewed Study: It Will Take 131 Years to Replace Oil with Alternatives
    (Malyshkina, 2010)
    http://pubs.acs.org/doi/abs/10.1021/es100730q

    University of Chicago Peer Reviewed Study: predicts world economy unlikely to stop relying on fossil fuels (Covert, 2016)
    https://www.aeaweb.org/articles?id=10.1257/jep.30.1.117

    Shortage of resources for renewable energy and food production (Rhodes 2011)
    https://www.scribd.com/document/375501088/Shortage-of-resources-for-renewable-energy-and-food-production-Rhodes-2011

    Top scientists show why powering US using 100 percent renewable energy is a delusional fantasy
    http://energyskeptic.com/2017/big-fight-21-top-scientists-show-why-jacobson-and-delucchis-renewable-scheme-is-a-delusional-fantasy/

    Why sustainable power is unsustainable
    https://www.newscientist.com/article/dn16550-why-sustainable-power-is-unsustainable/

    At this rate, it’s going to take nearly 400 years to transform the energy system
    https://www.technologyreview.com/s/610457/at-this-rate-its-going-to-take-nearly-400-years-to-transform-the-energy-system/

    Desert sun in Qatar too hot for solar panels to work
    https://www.thetimes.co.uk/article/desert-sun-in-qatar-too-hot-for-solar-panels-to-work-h23kmktbp

    Air Pollution Casts Shadow over Solar Energy Production
    http://pratt.duke.edu/about/news/solar-pollution

  5. MASTERMIND on Sun, 29th Jul 2018 3:16 pm 

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    Saudi Aramco chief warns of looming oil shortage
    https://www.ft.com/content/ed1e8102-212f-11e7-b7d3-163f5a7f229c

    Saudi Aramco CEO sees oil supply shortage coming as investments, discoveries drop
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Saudi Arabia ‘may run out of oil to export by 2030’
    https://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9523903/Saudis-may-run-out-of-oil-to-export-by-2030.html

    The collapse of Saudi Arabia is inevitable
    http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679

  6. MASTERMIND on Sun, 29th Jul 2018 3:18 pm 

    CLogg you are a moron

    Renewable energy ‘simply won’t work’: Top Google engineers
    http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_work_google_renewables_engineers/

    Bill Gates: We need global ‘energy miracles’
    http://www.cnn.com/2010/TECH/02/12/bill.gates.clean.energy/index.html

    Solar and Wind produced less than one percent of total world energy in 2016 – IEA WEO 2017
    https://www.iea.org/publications/freepublications/publication/KeyWorld2017.pdf

    UC Davis Peer Reviewed Study: It Will Take 131 Years to Replace Oil with Alternatives
    (Malyshkina, 2010)
    http://pubs.acs.org/doi/abs/10.1021/es100730q

    University of Chicago Peer Reviewed Study: predicts world economy unlikely to stop relying on fossil fuels (Covert, 2016)
    https://www.aeaweb.org/articles?id=10.1257/jep.30.1.117

    Shortage of resources for renewable energy and food production (Rhodes 2011)
    https://www.scribd.com/document/375501088/Shortage-of-resources-for-renewable-energy-and-food-production-Rhodes-2011

    Top scientists show why powering US using 100 percent renewable energy is a delusional fantasy
    http://energyskeptic.com/2017/big-fight-21-top-scientists-show-why-jacobson-and-delucchis-renewable-scheme-is-a-delusional-fantasy/

  7. MASTERMIND on Sun, 29th Jul 2018 3:19 pm 

    Clogg

    Why sustainable power is unsustainable
    https://www.newscientist.com/article/dn16550-why-sustainable-power-is-unsustainable/

    Renewable energy mix played role in SA blackout, third AEMO report confirms
    http://www.abc.net.au/news/2016-12-12/renewable-energy-mix-played-role-in-sa-blackout/8111184

    At this rate, it’s going to take nearly 400 years to transform the energy system
    https://www.technologyreview.com/s/610457/at-this-rate-its-going-to-take-nearly-400-years-to-transform-the-energy-system/

    Desert sun in Qatar too hot for solar panels to work
    https://www.thetimes.co.uk/article/desert-sun-in-qatar-too-hot-for-solar-panels-to-work-h23kmktbp

    Air Pollution Casts Shadow over Solar Energy Production
    http://pratt.duke.edu/about/news/solar-pollution

  8. Cloggie on Sun, 29th Jul 2018 3:27 pm 

    Millimind, you concentrate on your WW3/CW2, leave difficult stuff to Europeans.

    http://img.timeinc.net/time/magazine/archive/covers/1958/1101580217_400.jpg

  9. MASTERMIND on Sun, 29th Jul 2018 3:45 pm 

    Clogg

    Europe is collapsing..They are the worlds second largest oil importer..And the global shortages is coming..

    Bye Bye fatso!

  10. Cloggie on Sun, 29th Jul 2018 3:56 pm 

    Europe is collapsing..

    Absolutely, it is terrible here, unimaginable, oh vey, ze suffering!

    We’re about to eat our children and than we are all going to die, so sad!

    https://www.forbes.com/sites/bishopjordan/2018/06/25/monocle-most-livable-city-quality-life-survey-2018-munich/#57b0ba0d6153

    15/25 European, top 10: 8/10.

    The Coming New Master, it is the Old One.

    https://www.rt.com/news/387313-us-losing-leadership-eu-mogherini/

    And now on your knees, millimind.

  11. MASTERMIND on Sun, 29th Jul 2018 4:18 pm 

    Clogg

    Lets look at the numbers instead of corporate propaganda..

    Europe Economic Growth (GDP)

    1973 5.4 %

    1989 3.3 %

    2001 2.0 %

    2016 1.6 %

    2028 0.0 % = Economic Collapse

    Source: World Bank
    https://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG?locati&locations=EU

  12. Cloggie on Sun, 29th Jul 2018 4:27 pm 

    That 2028 number your pulled out of your arse.

    You “forgot” to list 2017/2018: 1.9%

    Oh and 0.0% is NOT equal collapse.

    You’re a complete idiot.

  13. MASTERMIND on Sun, 29th Jul 2018 5:09 pm 

    Clogg

    Zero economic growth does equal collapse via deflationary downward spiral..

    Source: Harvard

    Political Instability and Economic Growth – (Alesina, 1996) Journal of Economic Growth

    https://www.scribd.com/document/384373317/Political-Instability-and-Economic-Growth-Alesina-1996

  14. MASTERMIND on Sun, 29th Jul 2018 5:17 pm 

    Clogg

    Europe would be luck to make it another decade before they collapse..If that oil shortage hits in a few years they will collapse likely much sooner..

    https://imgur.com/a/pYxKa

    Looks like the populist movement came to power about a half century too late..

    LMFAO!

  15. MASTERMIND on Sun, 29th Jul 2018 6:06 pm 

    From oilslick to tyranny

    Fuel resources have been a once-only gift of nature, and there are no viable substitutes. When they are no longer freely available, the effects will be catastrophic and force the events outlined here because the availability of surplus energy directly underpins our economic system. Without surplus energy you cannot have a modern democratic society. Be under no illusions, on current trends the events outlined here are certain. Only timing is in question by a few years either way.

    As energy supplies deplete, the industrial economy will enter its terminal phase, still suffering collective denial. But no nation can hold together without the fuel sources that created it. Secession will become inevitable, into five, six, seven or more regions in the USA, along racial, religious, political and geographic lines. The faultlines are already there, with no energy base there will be nothing to stop ultimate breakup. Other conglomerations of states and provinces will also disintegrate. The EU, Russia, China, Africa will react and deny, but the end result cannot be avoided:

    As civil unrest takes hold, governments will act in the only way they know how: violent suppression to restore order. This will mean military intervention and imposition of martial law as civil breakdown becomes widespread.

    At that point your elected leader will assume the role of dictator and suspend the constitution. Once established, godly certainties among those around him will cloak this in righteousness and subvert it into a theocracy of the worst kind.

    https://medium.com/@End_of_More/from-oilslick-to-tyranny-b2da78c7a196

  16. Steve Shaffer on Sun, 29th Jul 2018 10:21 pm 

    Production in the US (Texas Especially) has been rising at a steady rate. One can look at the data and decide for themselves how this new production will impact future oil prices globally.

    https://www.upstreamdb.com/texas

  17. MASTERMIND on Sun, 29th Jul 2018 10:27 pm 

    steve

    WTF is that? Is that true? Has production fall off a cliff?

  18. Don Zenga on Tue, 31st Jul 2018 4:54 pm 

    While the financial world backed by big oil was salivating for this IPO, the solar energy made the biggest gains along with the electric vehicles.

    And the environmentalists were talking about stranded asset. This would have made Aramco nervous and so they are trying a different route.

    Their aim is to take total control over 3 streams of Oil.
    Upstream – Production
    Midstream – Refining
    Downstream – Retailing.

    Once this is done, they will be in a better position to control oil prices.

    I don’t think they are interested in higher prices, instead they want optimum prices which will keep the electric vehicles at bay.

    Please check the sales of Tesla Model-3 tomorrow which is a very important vehicle which is indirectly linked to peakoil.

  19. Lashawnda Battarbee on Sat, 8th Sep 2018 12:27 pm 

    传说中的龙吃魔豆

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