Saudis have decades of oil
Vast reserves could revive interest in Aramco listing
Every barrel we produce is the most profitable in the world, and why we believe Saudi Aramco is the world’s most valuable company and indeed the world’s most important.
Khalid Al-Falih, Saudi Oil Minister
Saudi Arabia has revealed that it has enough crude to keep pumping at current rates for at least another 70 years. At the end of 2017, Saudi oil reserves stood at 268 billion barrels, up from previous estimates of 266 billion.
The updated figures were no surprise for many experts. BP’s highly respected statistical review of world energy lists Saudi oil reserves at just over 266 billion barrels, but not everyone has been convinced by the longevity, or scale, of the kingdom’s remaining oil riches.
In his critically acclaimed 2005 book Twilight in the Desert, the thenprominent oil economist Matthew R Simmons predicted that Saudi Arabia’s oil wells were about to run dry. His theory was based on the ageing status of several gigantic oilfields, which still provide the bulk of the kingdom’s output.
Instead of running out of oil, Saudi Arabia’s bigger problem is a deficiency in transparency. Its reserves have rarely been publicly updated, or audited by an independent third party until now.
The reason for this new spirit of openness could be the planned public listing of state-owned oil producer Aramco.
The idea of selling 5 per cent of Aramco to international investors, to raise a potential US$100 billion ($146b) for the Saudis, has been beset by problems.
Bankers’ initial support for the deal, which could create the world’s most valuable listed company, was soon replaced by cynicism. Aramco’s accounts were seen as too opaque and it was unclear how much revenue the Government was willing to share with investors.
Tepid oil prices also made the planned listing much less appealing.
One delay led to another, until the world’s financial community finally gave up believing the deal would ever happen. Some of their faith may have been restored by the update of the kingdom’s oil reserves.
“Every barrel we produce is the most profitable in the world, and why we believe Saudi Aramco is the world’s most valuable company and indeed the world’s most important,” said Saudi Oil Minister Khalid Al-Falih in a statement posted on the state news agency’s website.
According to the latest survey by S&P Global Platts, Aramco pumped more than 10.6m barrels of crude per day last month, making it by far the world’s single largest producer.
It is also one of the most efficient. Al-Falih said Aramco’s oil costs just US$4 per barrel to produce. It’s a key figure for potential investors, which could make its US$2 trillion valuation more believable. Suddenly, the IPO looks plausible again.
The fact is, oil markets are more likely to dry up before Aramco’s reserves of crude run out. Consumption is expected to continue rising at least through to 2040. However, beyond this date the outlook is harder to predict.
Unless it wants to flood the market and send oil prices tumbling, Saudi Arabia’s best option if it wants to maximise its vast remaining hydrocarbon reserves could be to sell off increasingly larger shares of Aramco to international investors no later than 2021. Otherwise it runs the risk of having to leave much of its wealth stuck in the ground.