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Everything You Need To Know About The Saudi Aramco IPO

The world is on the cusp of a dramatic change in the energy industry. Saudi Arabia’s state-owned oil and gas entity, Saudi Aramco, is preparing for a partial privatization and initial public offering, highlighting the world’s most valuable company’s attempt to kick-start economic reform in the kingdom.

According to Aramco’s chief executive, the company is finalizing its proposals and will present its options to the Supreme Council soon. Although the specific details of the plan will need to be finalized by the Council, we do know that Aramco plans to make less than just 5% of its total value available for its IPO.

The company’s Supreme Council will decide between plans that include a listing on the domestic market, as well as a dual listing in a foreign market. One thing we do know is that the government of Saudi Arabia plans on maintaining its power to control the company’s oil and gas outputs.

For American investors, the prospect of an Aramco IPO may seem daunting. The specific internal economic details of the company are well guarded, and the structure of company itself is unlike most public companies in the United States.

Nevertheless, the Aramco IPO will certainly have an effect on the global energy industry and it will be felt around the world, meaning that all investors should familiarize themselves with the situation as it develops.

We have highlighted some of the most important details about Aramco and its upcoming IPO below.

Key Players

The Saudi Aramco Supreme Council is made up of 10 people and is led by Deputy Crown Prince Mohammed bin Salman, son of the King and second in line to the throne. Aramco’s CEO is Amin H. Nasser, a former petroleum engineer who was appointed last year. Of course, other governmental forces have a lot of influence over the company, so another major player here is Khalid Al-Falih, a former CEO of Aramco and the current Minister of Energy, Industry, and Mineral Resources. Al-Falih is charged with developing and implementing the kingdom’s energy policies.

Times Are Changing

The Aramco IPO is just one part of an ongoing shift in Saudi Arabia’s economic landscape. Persistently low oil prices have left the kingdom with slumping revenues and growing deficits. While the government attempts to lessen its economy’s dependence on oil, it is also changing the focus of its oil empire.

One ongoing effort is for Aramco to get more involved with downstream efforts. The company recently partnered with the kingdom’s petrochemical brand to develop an oil-to-chemicals project. Aramco and Nasser have also detailed the production of a massive shipbuilding complex to be installed within the next few years.

What It’s Worth

As I mentioned above, Saudi Aramco is widely regarded as the world’s most valuable company. While its financial details are private, many estimates have the market cap of Aramco somewhere in the range of $1.5 trillion to $10 trillion. Prince Mohammed has said that he expects the IPO to put a valuation of at least $2 trillion on the company. Even with less than 5% of the company available, this would mean that Aramco’s IPO would easily pass Alibaba BABA for the largest IPO ever. Aramco’s true worth might be difficult to determine, as it includes both future price expectations and the size of the company’s reserves.

Reserves Are Crucial

When thinking about the long-term future and value of the Aramco, we have to take into account how much oil it actually has to produce. According to the company, the kingdom has discovered a total of 805.6 billion barrels of oil. Of that, 141.5 billion barrels have already been produced, 260 billion are “proven” reserves that can definitely be reached, and 403 billion can probably be reached.

Production wise, Saudi Arabia is unique in that it keeps a certain amount of its capacity stagnant at any given time. In other words, Aramco has the capability of producing more oil than it does. Private oil companies are typically running at maximum capacity most of the time, whereas Aramco has the ability to raise and lower production almost immediately.

Bottom Line

The sheer size of Aramco, along with its status as a state-run company, makes this IPO incredibly interesting. While only a small fraction of the company will be available to the public, it certainly marks an interesting new era in the global energy markets.

Investors should keep a close eye on the Supreme Council’s upcoming decision, as it will give a much clearer picture of the actual specifics of Aramco’s IPO.

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