Saudis To Retain Full Control Over Aramco’s Oil After IPO

Saudi Arabia will continue to have full control over the oil wells and production of Aramco, after the much-anticipated initial public offering of around 5 percent of the Saudi oil giant next year, Deputy Crown Prince Mohammed bin Salman said on Tuesday.

“The wells will still be owned by the government. The company only has the right to benefit from the wells. This is the same as before and there are no changes to that,” said the prince on state television, as quoted by Bloomberg.

As for production levels, they will continue to be subject to the OPEC policies and global supply and demand, the prince noted.

According to Financial Times, Mohammed bin Salman said on Saudi television that “production is not a political decision, it is an economic one set by supply and demand.”

The prince also described the local Saudi criticism to the IPO plan as “socialist, communist thinking”, and defended the project as vital for Saudi Arabia’s efforts to diversify away from oil.

The deputy crown prince has said that Aramco’s value could be US$2 trillion, which means that 5 percent would fetch US$100 billion for the Kingdom. But since the staggering US$2-trillion valuation was first aired, institutional investors, fund managers, and industry professionals have been trying to find valuation metrics that add up to this figure.

Analysts are mostly valuing Aramco at below US$1.5 trillion, although Saudi Arabia slashed the tax rate on Aramco to 50 percent from 85 percent in a bid to attract international investors and raise the company’s value. The tax rate cut is making the oil giant more attractive to investors, and raises the valuation of its upstream portfolio by around US$1 trillion, according to Rystad Energy.

Most recently, a Wall Street Journal report suggested that officials at Aramco are applying internal value estimates of US$1.3 to US$1.5 trillion to the valuation, calling deputy crown prince’s estimate “unrealistic and mind blowing.”

By Tsvetana Paraskova for Oilprice.com

10 Comments on "Saudis To Retain Full Control Over Aramco’s Oil After IPO"

rockman on Thu, 4th May 2017 11:19 am

Confirmation of exactly what the Rockman has pointed out several times: Aramco does not own a single bbl of oil today and never will. What it owns is a portion of the NET REVENUE of the sale of Saudi. How much of that revenue (if any) that will be paid to shareholders as dividends has not even been hinted yet.

The Saudi oil may be worth $X billions. But that has nothing to do with the value of Aramco. Given that Aramco pays 100% of all costs and has no legal obligation to pay even a $ to any shareholder it “value” may be very little. In fact, the stock may ultimately worthless.

rockman on Thu, 4th May 2017 11:45 am

And if anyone cares to dispute what I just posted: please tell us what Aramco’s NET INCOME was for 2016. And that’s its income and not that of the Saudi govt that received a minimum 85% of the value of oil sold that year. At least that would give an estimate of how much Aramco could pay in dividends to its shareholders. That is, if it chooses to pay any dividends at all. That decision would belong to the majority shareholder…the Saudi govt.

bobinget on Thu, 4th May 2017 12:51 pm