It has been a tough couple of weeks for Saudi Aramco.
Recent anonymously sourced reports of the company’s planned initial public offering have painted a chaotic picture of delay and indecision behind the scenes.
But a closer analysis of the facts show the plan to raise $100 billion from the sale of a 5% stake in the world’s largest oil company by the end of 2018 remains firmly on track for now.
And why wouldn’t it be? With existing upstream capacity to produce over 12 million b/d of crude, Aramco is bigger than Exxon, BP and Shell combined.
Downstream, it dominates fuel marketing and refining in the Gulf’s largest economy and owns a network of refineries from Asia to North America.
It has the right to tap a claimed 260 billion barrels of proven reserves — just under a sixth of the world’s reachable oil. Its earnings potential is vast and few international resource fund managers can afford to ignore the chance to buy its shares.
Beyond Aramco’s vast production of cheap crude there is political momentum behind the IPO.
Crown Prince Muhammad bin Salman — also known as MBS — is the architect of the sale, which forms the cornerstone of his Vision 2030 plan to modernize the economy.
From leapfrogging his elder cousin to become his father’s heir, to reining in the power of Saudi’s strict religious police and challenging Iran’s growing influence in the region, there is nothing in the thirty-something royal’s recent record that suggests he is likely to change his mind, or back down.
That doesn’t mean significant challenges don’t exist.
The crown prince’s initial insistence on Aramco commanding a valuation of around $2 trillion has become a focus for criticism.
Meeting disclosure rules on international exchanges such as New York and London — which both covet such a large prestigious offering — are also problematic. But rules can be changed.
International shareholders may have to accept less say in how Aramco is managed. None of these hurdles look enough to prevent the IPO from going ahead on time.
More Aramco disclosure, especially around its oil reserve base, could actually strengthen Saudi Arabia’s position in policy-making circles, especially through OPEC, according to some experts.
Any upgrade to its reserve base would add to Saudi Arabia’s power within the grouping and further counter the challenge to its swing-producer status posed by US shale.
“The disclosure requirements of a partial listing of Aramco (and any other OPEC NOC) will bring out into the open the reserves issues within OPEC,” said Valerie Marcel, an associate fellow of energy at Chatham House and an expert on national oil companies like Aramco.
“Unlike Matt Simons, Saudi Arabia probably sees that as a plus. Stacking their proved reserves numbers next to the other OPEC members will probably strengthen Saudi Arabia’s hand.”
Publicly, it is business as usual in Aramco’s Dhahran headquarters despite some skepticism over the IPO.
In response to the recent barrage of criticism, Saudi Oil Minister Khalid Al-Falih has reiterated that the IPO remains firmly on schedule for next year. His remarks were supported by Aramco’s CEO Amin Nasser.
Neither official has commented on reports that China had offered to make a cornerstone investment in Aramco ahead of the IPO. Meanwhile, other NOCs in the region are watching Aramco’s IPO closely before deciding whether to follow its trailblazing example.
“People will want to wait and see whether the Aramco IPO is successful,” said Nader Sultan, senior partner at F+N Consultancy and former CEO of Kuwait Petroleum Corporation. “If it was super successful then other NOCs may look at what Saudi did more closely.”
The bottom line for Aramco and its advisers is that failure probably isn’t an option. MBS and the government will make a final decision on the offering next year.
Cash raised from the sale could help to transform the kingdom away from dependence on oil and provide long-term funding for its sovereign wealth fund to create thousands of jobs for young Saudis.
Based on the facts and not the rumors, the smart money should be on the IPO going ahead.