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Anybody have a detailed xray of Aramco's finances, balance sheet, history? From what I read, NOBODY really knows much about Aramco.
Compelling case for Saudi Arabia’s oil sale
One of the more intriguing developments in these earliest moments of 2016 has been last week’s disclosure by Saudi Arabia’s deputy crown prince that the kingdom is considering an initial public offering of shares in its state-owned Aramco, the world’s biggest and most influential oil exporter.
Crown prince Mohammed bin Salman told The Economist last week that a sale of shares in Aramco was being reviewed and was something he was personally enthusiastic about.
“I believe it is in the interests of the Saudi market, and it is in the interest of Aramco, and it is in the interests of more transparency and to counter corruption, if any, that may be circling around Aramco,” he said.
Those comments have generated enormous excitement within the investment banking community, scrambling to get access to what would, if it happened and if Aramco was listed in its entirety, a massive and league ladder-distorting event even if only a fraction of Aramco’s ownership were on offer. Valuations of the sprawling group range from $US1 trillion to $US10 trillion.
There are sceptics of the notion that the Saudis would allow external ownership of an en y that is the key to the kingdom’s wealth, which is enmeshed into all sections of the kingdom’s economy and society and fundamental to its fragile political stability and whose strategies and reserves are regarded as state secrets.
There also those who believe an IPO of all of Aramco would be too much, too complicated and carry far too many governance issues because of its entanglement in Saudi Arabia’s domestic economic and political strategies. A float of its downstream assets — its refineries and petrochemical complexes — would be more digestible and executable.
The most interesting question posed by the prince’s confirmation that an IPO of Aramco is even being considered is: why now?
With an oil price of $US31.55 a barrel overnight and some respectable forecasts of a price between $US20 and $US25 a barrel, why would the Saudis contemplate cashing out an asset, or at least a slice of it, that generated 85 per cent to 90 per cent of its revenues? An offering when the oil price was above $US100 a barrel would have made more sense.
A possible explanation might be because it needs the money.
It was the Saudi-led OPEC that punctured the price by expanding production into an oversupplied market it what has been regarded as an attempt to undermine the economics of the US shale oil and gas sector, a strategy that is taking longer and costing more than anyone might have anticipated.
US shale not only represented a threat to OPEC’s dominance of the market for oil but the prospect of US oil self-sufficiency had, from the Saudi perspective, adverse geopolitical implications. It now looks as though the Saudis are preparing for the long haul, which wouldn’t auger well for the prospect of a near-term recovery in oil prices.
The oil price has been decimated by continuing oversupply, as have Saudi revenues and reserves.
The Saudis’ massive reserves fell by about $US85 billion last year and the rate of decline has been accelerating as the oil price continues to fall.
While the kingdom does still have about $US650bn of reserves, its recent budget deficit of 15 per cent of GDP and the measures it has taken to address the shortfall — higher petrol prices, reduced spending, the introduction of a value-added tax on non-essential items and the foreshadowed privatisations or sales of airports and other state assets — signals the level of concern about the country’s deteriorating finances.
Oil and the largesse it has enabled Saudi rulers to distribute has been a critical factor to the stability of a ruling family that has been in power for more than 80 years.
It is improbable that concerns about corruption would lead to a decision to offer outsiders shares in Aramco, or that transparency would necessarily be seen as a virtue for an organisation whose detail the kingdom has deliberately kept opaque.
There does, however, appear to be a desire within the new leadership that emerged last year after the death of King Abdullah to intensify the existing efforts to create a more diversified economy. That could fit with Aramco’s own ambition of vastly expanding its downstream business and diversifying its geographical base.
It makes sense for the Saudis to be less reliant on oil exports and less exposed to fluctuations in the oil price, particularly if they see the combat with US shale and other non-OPEC oil producers as a long-term fight rather than the swift knockout they might originally have envisaged.
Shale oil has proved far more resilient at low oil prices than anyone might have anticipated and any bounce back in the price would inevitably see US onshore oil production rise quite quickly.
An obvious conclusion from the Saudis’ musing about a float of Aramco, and not a positive one for higher-cost oil and gas producers anywhere, is that they want a war chest to maintain the effort to drive out compe ive production.
A more intriguing explanation, or strand to what is probably a more complex set of motivations, is that the Saudis have looked at the size of Aramco’s reserves, thought to be about 260 billion barrels of proven reserves, and thought about their value in the long term.
The most recent OPEC analysis of the outlook for the oil industry envisaged a long-term recovery in prices against the backdrop of demand for energy that could grow at about 1.5 per cent a year.
While it expected fossil fuels to continue to dominate global energy out to 2040, with a 78 per cent market share, oil’s share of the market was seen to fall from more than 30 per cent today to about 25 per cent.
Gas and renewables would experience growing market shares.
Current world oil consumption is around 35 billion barrels a year, with the Saudis accounting for about 10 per cent of that. Aramco’s proven reserves would, at that rate, last about 75 years and it would seem reasonable to assume that it has potential reserves beyond that.
The Bank of England’s Mark Carney gave a speech last year in which he said one of the biggest risks for financial markets was the possibility that much of the world’s energy assets could end up being worthless, with policy action to promote a transition towards a low-carbon economy having the potential to cause a fundamental reassessment of oil companies’ assets.
While that might be a long way off, even if OPEC’s expectations of continued fossil fuel dominance in 2040 prove prescient, if you’re sitting on 75 to 100 years of oil reserves and watching the painful and so-far less-than-successful process towards a global agreement of limiting carbon emissions — and the disinvestment starting to occur within the coal sector — starting the process of reducing the risk created by such an overwhelming dependence on oil might be seen as prudent.
Thus there are some short-term pressures and some longer-term scenario planning that might be motivating the Saudis to consider selling a slice, probably a small one, of their best asset near the bottom of the market.
The immediate financial impact of low oil prices on Saudi Arabia’s economy at a time of political threat, a desire to modernise and diversify that economy and the possibility of taking out some insurance against the long-term threat of policy responses to concerns about carbon emissions at least make the outlines of a case for starting to monetise Aramco.
The Australian
January 12, 2016
Anybody have a detailed xray of Aramco's finances, balance sheet, history? From what I read, NOBODY really knows much about Aramco.
Well, if they want to cash out on an IPO they are gonna have to disclose.
Hillary is a liar, but you'll believe the Arabs.
Hillary is a liar and you are ing dumb as a brick.
http://www.nytimes.com/2016/02/10/bu...producers.htmlEnergy executives and their bankers are bracing for a prolonged downturn that could remake the energy industry in a way not seen since the turmoil of the late 1990s gave rise to mega-mergers like Exxon Mobil.
If prices hold at such low levels — oil traded near $28 on Tuesday — as many as 150 oil and gas companies could file for bankruptcy, according to IHS, an energy research firm.
While that represents a relatively small slice of the overall industry, there are hundreds of other companies that had piled on debt to grow from tiny start-ups into significant players in the nation’s shale oil boom. Now they are likely to be acquired or their assets sold off. As much as a third of the oil industry could be consolidated as a result of the downturn, according to one estimate.
“Today our goal is to survive,” Danny Campbell, chairman of the Permian Basin Petroleum Association, began his welcoming remarks at a dinner here for oil executives last month. “Keep your name in the phone book and your debt low.”
This particular bust has been devastating in my neck of the woods. Layoffs, service companies shuttered, businesses gone. Its surreal in its speed and severity. Most know to prepare for the inevitable bust that follows the boom but that cycle used to take years...not months. Nobody was prepared for the Saudis to glut the market. Now Iran gets to open its spigots. Not going to be pretty.
it's not only companies going bust, but weren't many of them heavily junk leveraged? so the investors are also getting screwed.
I remember when housing was so tight in Eagle Ford that the hotel outfits didn't want to build because they knew a bust was coming sooner or later, and then they'd be stuck with hotels, motels with no occupants.
The debt being piled up isn't just the oilco's. New hotels, apt complexes, restaurants, grocery stores...all these were built to accommodate the Influx of workers and families....the same families that are being crushed by the bust.
I didn't really have a feel for whether or not the local oilco's were buying junk bonds or not.
The Cline Shale find was enormous....bigger than the notable Caprock and Sacroc operations combined. The new construction was playing to the enormity of opportunity until the opportunity got yanked out from under them.
The resultant downgrade of debt swells the ranks of junk now.
So what up in Nov 2016?
Why is the media hyping up this Wolfcamp field as "new". I thought that was discovered in 2011?
Articles claiming Trump is gonna ban Saudi oil, thus the Wolfcamp and other fields will boom and everyone from Midland to Odessa to the Mexican border will be singing Kumbaya and hiring people to wheelbarrow their money into piles.
Teysha Blue and others right on the scene, what is really gonna happen?
True. Media just got on it. They have been producing the wolf camp for a few years now.
trump never said he was going to ban foreign oil. Where did you get that? Reading Burqa-boos RSS feeds?
Wolfcamp is a known field. What was recently determined was the capacity and extent of it.
Its about 10x larger than initially predicted.
You can't ban Saudi oil. The key word is fungible.
But, west Texas is gonna make a bundle...again. Yay boom/bust.
Yeah, supposed to be a mile deep in places!
Cost per barrel at wellhead? $50+ ?
FWIW
http://yournewswire.com/trump-bans-saudi-oil/
Have Wolfcamp vicinity houses already started up?
Best is $45. Worst well at $177. Avg is $61.
There is no current boom, so no.
It's a good thing for the owners, bad thing short term for American middle class. Some odd occurrence will force the price of oil back up to over 60 a barrel, and Texas oil will only then begin to flow. It's like finding gold, you can sit on it until it hits the right price.
At this point in time, where do you think the best house flipping potential exists?
Good question. Real estate rehabs are not exactly my wheelhouse. The obvious answer would be anywhere in the Permian Basin area, but I really don't know the state of Midland/Odessa anymore. Smaller towns like Andrews, seminole, Lamesa, Post..... and the hundreds of little towns between Odessa/Lubbock might make a good hunting ground, but I would wait a bit until we see some consistent upward movement in petro pricing before I made a move at snapping up properties. Hard line to call...wait too long and owners will start pricing up in anticipation...too soon and your flip will sit waiting for the market to rise.
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