Gulf Business - - NEWS AND VIEWS - By Robert Anderson

THE SAUDI GOVERNMENT is set to earn an ad­di­tional $1.9bn in roy­al­ties from state oil gi­ant Saudi Aramco for ev­ery $1 in­crease in the price of crude above $70, ac­cord­ing to Bank of Amer­ica Mer­rill Lynch (BofAML) es­ti­mates.

The firm’s cal­cu­la­tions are based on a roy­alty regime out­lined by Bloomberg, which claimed to have ob­tained Aramco fi­nan­cial data ahead of a po­ten­tial list­ing. The news ser­vice said the data showed Aramco made nearly $34bn in net in­come in the first half of last year when Brent crude prices av­er­aged $53 a barrel and was likely to make a sig­nif­i­cantly higher profit dur­ing the same pe­riod this year af­ter the re­cent rally to more than $70.

It also de­tailed a roy­alty regime with the government set at 20 per cent on oil liq­uids pro­duc­tion up to $70 a barrel, 40 per cent be­tween $70 and $100 and 50 per cent in excess of $100. Aramco has de­nied the fig­ures are ac­cu­rate. BofAML said if the data was correct it would sup­port a fur­ther nar­row­ing of the king­dom’s fis­cal deficit and bor­row­ing re­quire­ments.

“We es­ti­mate the central government will earn an an­nual ad­di­tional roy­alty fee of $1.9bn (0.3 per cent of GDP) for ev­ery $1/bbl of oil prices above $70/bbl, based on the roy­alty regime de­scribed in the Bloomberg ar­ti­cle,” it said. The bank es­ti­mates Aramco brought an ad­di­tional $4.5bn, or 1.4 per cent of GDP, to the bud­get in the first half of last year.

How­ever, it also noted that there was a dis­crep­ancy be­tween the government fis­cal in­take im­plied by the Bloomberg ar­ti­cle and re­ported fis­cal oil rev­enues, which could sug­gest off-sheet trans­fers to sov­er­eign fund the Pub­lic In­vest­ment Fund (PIF). The government should have re­ceived $71.4bn in com­bined tax, roy­al­ties and div­i­dend in the first half of 2017 but only re­ceived $60bn, ac­cord­ing to the fig­ures.

“An­nu­alised data ex­hibits sim­i­lar dy­nam­ics, sug­gest­ing to us this is un­likely to be an ac­count­ing in­con­sis­tency. The PIF, as the po­ten­tial holder of Saudi Aramco shares under Saudi re­form plans, was likely the div­i­dend’s re­cip­i­ent,” BofAML said.

“If so, it may have re­tained a size­able por­tion as its bud­get trans­fers could be just $2bn in 1H17, as per fis­cal data.”

The PIF is set to be the re­cip­i­ent of the pro­ceeds when Aramco does even­tu­ally list. The government has es­ti­mated a 5 per cent ini­tial pub­lic of­fer­ing on the lo­cal ex­change and another in­ter­na­tional venue could raise $100bn and value the com­pany at $2 tril­lion.

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