Saudi Aramco sell-off: Chairman confirms IPO will exclude reserves

Published January 25th, 2016 - 01:00 GMT
Saudi Aramco's announcement of a possible IPO could trigger other state-owned energy companies in the Gulf to do the same. (Twitter)
Saudi Aramco's announcement of a possible IPO could trigger other state-owned energy companies in the Gulf to do the same. (Twitter)

A potential initial public offering of oil giant Saudi Aramco could be open to international markets but will not include oil reserves, the company’s chairman has confirmed.

“The reserves would not be sold, but the company's ability to produce from the reserves is being studied," Khalid al-Falih told Al Arabiya News on the sidelines of the World Economic Forum in Davos.

"The reserves belong to the state but the company's ability to convert these reserves... into a financial value and at the same time for the company to have a portion of these profits," he said.

Aramco is estimated to have crude reserves of about 265 billion barrels, over 15 per cent of global oil deposits.

"The economic value of Saudi Aramco as a company is what will be offered. Naturally, the primary field of Saudi Aramco's work is managing the reserves of Saudi Arabia," Falih said.

He added: "All options are open ... the IPO could be on local or international markets.”

The news of the IPO was revealed by Saudi deputy Crown Prince Mohammed bin Salman earlier this month. He told The Economist that the move was part of the Saudi government’s privatisation drive and wider economic reforms.

Saudi Arabia has been hit hard by plummeting oil prices – currently hovering at around $30 per barrel. The kingdom has announced several initiatives to diversify its economy and boost non-oil revenues.

However, not all analysts think that an IPO by Aramco is essential even in the current economic climate.

Saudi Aramco can navigate lower oil prices without even resorting to these sort of assets (IPO),” global chief economist at Standard Chartered Bank Marios Maratheftis said in a recent Gulf Intelligence survey. The foreign exchange reserves in Saudi Arabia are 1.5 times the money they have in circulation domestically on the ground, he added.

Meanwhile 15 per cent of energy industry professionals surveyed opined that Aramco’s move may trigger other state-owned energy companies across the Gulf to consider IPOs as a way to counter the negative impact of lower oil prices.

Saudi Aramco’s announcement of a possible IPO could be the thin edge of a wedge of countries and companies across the region that are looking at assets and saying, ‘how can we free up some capital to navigate this period of lower oil prices?’” said head of Natural Gas, Coal and Carbon at London-based research consultancy Energy Aspects Trevor Sikorski.

By Aarti Nagraj


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