[Plantagenet]

$this->bbcode_second_pass_quote('', 'S')omewhere Matt Simmons is rolling over in his grave


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

[onlooker]

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

[rockdoc123]

$this->bbcode_second_pass_quote('', 'K')SA 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.

[M_B_S]

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.
************

Normally the correct question is which Idiot buys the cat in the bag?

PEAK OIL!

M_B_S

[Subjectivist]

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.

[ROCKMAN]

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.

[AdamB]

$this->bbcode_second_pass_quote('M_B_S', '
')PEAK OIL!

M_B_S

[rockdoc123]

$this->bbcode_second_pass_quote('', 'N')ot 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.

[ROCKMAN]

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?

[rockdoc123]

$this->bbcode_second_pass_quote('', 'd')oc - "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?

[ROCKMAN]

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?

[Plantagenet]

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!


Riots in Saudi. If the monarchy tumbles, the oil will be nationalized in a flash.

[ROCKMAN]

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.

[ROCKMAN]

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.

[ROCKMAN]

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.

[AdamB]

$this->bbcode_second_pass_quote('', '
')
We noted a month ago that the long-awaited Saudi Aramco IPO, scheduled for mid-2018, could be delayed to 2019, but now, according to The FT, Aramco is considering shelving plans for an IPO altogether in favor of a private share sale to the world’s biggest sovereign wealth funds. The FT notes that talks about a private sale to foreign governments - including China - and other investors have gathered pace in recent weeks, according to five people familiar with the IPO preparations, amid growing concerns about the feasibility of an international listing. The Saudi state oil company has struggled to select a suitable international venue for its shares, as New York and London have vied for what has been billed as the largest ever flotation. The company would still aim to list shares on the kingdom’s Tadawul exchange next year if they pursue ..

[Tanada]

As has been pointed out elsewhere, I will believe it when I see it. Having invested this much time and PR in the IPO I think it is unlikely the offer is actually dead.

[onlooker]

I think shelving the IPO, would be shameful so the opposite of face saving

[rockdoc123]

response from the Saudis yesterday as reported by CNBC

$this->bbcode_second_pass_quote('', 'S')audi Aramco said it remains on track to offer shares to the public, after a newspaper report said the company was considering shelving its IPO.

"A range of options, for the public listing of Saudi Aramco, continue to be held under active review. No decision has been made and the IPO process remains on track," a spokesman said. The comment echoes public statements made in the past week by both Khalid Al-Falih, Saudi energy minister, and Saudi Aramco President Amin Nasser.

But the report in the Financial Times echoed speculation that has been circulating as Saudi Aramco officials debate how and when to issue shares. The report is also the latest in a series to cast doubt on the massive IPO which would be five percent of what would be the world's largest listed oil company.

One source close to the IPO told CNBC that one thing under review is whether to list on the Saudi market first and then list on an international exchange at a later date. The source said the debate is understood to be between a London or New York listing, given the need for substantial capital market to raise such large sums.

The newspaper report quoted five unidentified sources saying that talks about a sale to a foreign government, including China, and other investors have picked up in recent weeks, amid concerns about the feasibility of a foreign listing.

An energy market source said talks with Asian sovereign wealth funds and western institutions have been ongoing since the idea of the IPO was first floated.

"The definition of an IPO could also mean private placement with Asian sovereign wealth funds," the source said. "They've been in discussions with them about the IPO from the beginning."

The source added that the difficulties of a listing , including the transparency requirements are certainly a consideration for Aramco, which is government owned and intertwined with the bureaucracy of the kingdom.

"Saudi Aramco thinks by years, if not decades and financial markets think quarter by quarter," said the source.

Helima Croft, head of global commodities research at RBC, notes that all previous stories about issues or delays with the 2018 IPO have been quickly denied.

"I think it is always worth remembering that a key goal of the Aramco sale was to yield ‎$100 billion for the Public Investment Fund. Private placement may simply be the easier way to get to that goal in 2018," said Croft.

The speculation also swirled just ahead of a conference in Riyadh later this month for global investors on the future investment initiatives by the Public Investment Fund.

There's a lot at stake for bankers on the deal.

Rich Peterson of S&P Global Market Intelligence estimates with a 1 percent figure for underwriters, the shelving of the IPO would result in a $500 million loss for each $50 billion IPO sale.

[coffeeguyzz]

The political intrigue within the house of Saud may be one of the most momentous, under reported stories of the day.
The antipathy towards MBS is both intense and at levels of life or death for hundreds (thousands?) throughout the vast 'royal' lineage.

Throw in the repressed Shia population in the eastern oilfield areas, the emerging social/political (aka feminist) movements, external players including Israel, Iran, the US and more ...
Chances of dramatic events occurring in the very near future as the Old Man becomes worm food are exceedingly high.