Saudi Arabia moves to end oil addiction
Saudi Arabia’s deputy Crown Prince Mohammed bin Salman said he expects the value of Saudi Arabian Oil Co. to exceed $2 trillion, as the kingdom prepares to sell part of the company in what could be the world’s largest initial public offering.
The valuation of the oil producer known as Saudi Aramco hasn’t been completed, Prince Mohammed said in an interview with Saudi-owned Al Arabiya television. The government plans to turn Aramco into a holding company and will sell less than five per cent of that entity, he said. Aramco units may be offered for sale at a second stage, he said.
“Only the oil reserves could be worth about $2.5 trillion at $10 oil price, so a valuation of $2 trillion for all of Saudi Aramco is quite cheap,” Danilo Onorino, an energy-focused portfolio manager at Dogma Capital SA, said from Lugano, Switzerland. “Add to that the fact that Aramco pays almost no taxes, has the world’s lowest operating costs and has very cheap cost of financing.”
Prince Mohammed is leading the biggest economic shakeup since the founding of Saudi Arabia in 1932, with measures that represent a radical shift for a country built on petrodollars.
Saudi Aramco’s sale is a key part of the “Saudi 2030 Vision” announced Monday to overhaul the economy and reduce the kingdom’s reliance on oil. It will help increase transparency, he said.
“If Saudi Aramco is listed then it must announce its statements, and it will do that every quarter,” Prince Mohammed said.
“It will be under the supervision of all Saudi banks, all analysts, all Saudi thinkers. Even more, all international banks and research and planning centres in the world will monitor it intensively.”
Aramco’s crude reserves of about 260 billion barrels are almost 10 times those of ExxonMobil Corp.
Its daily production of more than 10 million barrels is more than the domestic output of every U.S. oil company combined.
The remaining Aramco stake not sold in the IPO, and which is now held directly by the government, will be transferred to the country’s sovereign-wealth fund.
The fund would have an additional $300 billion of assets excluding its holdings in Aramco, the prince said at the news conference.
“We have become addicted to oil in the Kingdom of Saudi Arabia and this is dangerous, it has blocked the development of many sectors in the past years,” Prince Mohammed said. “In 2020, I think we will be able to live without oil. We will need it, but we can live without it.”
Jason Tuvey, an economist focusing on the Middle East at Capital Economics Ltd., challenged that assertion. The investment income from the Public Investment Fund will still come largely from Saudi Aramco, Tuvey said from London.
“Aramco at the end of the day is a big oil company, so the government’s revenue will still essentially be dependent on oil,” he said.