Chasing the Saudi Aramco IPO

Summary:

* Illogical comparisons are being made between Saudi Aramco and ExxonMobil. Some analysts continue to devalue Saudi Aramco, demanding further assessments, while stating that ExxonMobil is undervalued.

* Many articles are published with superficial analyses and incorrect hypotheses based on insufficient evidence. These produce irrelevant chatter, which has no impact on such a big name as Saudi Arabia.

* Enabling the Saudi people to own a portion of Saudi Aramco, will boost the Saudi stock market capitalization and benefit national industry.

* Saudi Vision 2030 is designed to be implemented in a low oil price environment, in order to prevent the Kingdom's economy from being oil dependent and at the mercy of oil price fluctuations.

ExxonMobil (XOM) is the world’s largest publicly traded oil and gas company. It is the evolution of John D. Rockefeller and associates’ Standard Oil Company that was founded in 1870. By 1879, Standard Oil controlled over ninety percent of oil refining in the United States. In 1911, it was broken up into 34 smaller companies. Both Exxon and Mobil were two descendants of those 34 firms. They merged in 1999, with XOM’s 2017 assets listed at $349 billion.

In 2017, ExxonMobil (XOM) cut its estimate of its recoverable reserves around 20 billion barrels of oil equivalent. Saudi Aramco’s recoverable reserves alone amount to 270 billion barrels and it claims to have about 400 bn barrels of possible but unproven reserves. The company is the world’s largest oil exporter and the world's lowest-cost producer. The reserves are only a portion of Saudi Aramco’s assets which cover everything from infrastructure and plants to intellectual property. Yet some market analysts are attempting to compare the two companies. They continue to devalue Saudi Aramco, demanding further assessments and studies, while stating that ExxonMobil is undervalued. The situation is ludicrous!

There have been many articles recently that put forward superficial analyses and incorrect hypotheses based on insufficient evidence. Such reports do not provide further knowledge, but simply produce irrelevant chatter, which has no impact on such a big name as Saudi Arabia.

Some market analysts are working to fulfil an agenda that attempts to show that Saudi Arabia is not leading a great national economic reform in Vision 2030. These articles repeatedly question whether the Kingdom can meet its stated goals – with no evidence to the contrary. Such articles are deliberate attacks that aim to sow doubt about Saudi prosperity and the potential of our young population to thrive. Some of these same analysts also ignore Iran’s support of terrorism and Iranian policies to destabilize the region, rather than focusing its efforts on propping up its decrepit economy.

It seems impossible that these media outlets and analysts would be unaware that Saudi Aramco is the world’s largest state oil company, with export infrastructure and refining capability to match. Also, Saudi Arabia’s underground hydrocarbons have an extremely valuable future in petrochemicals.

The mechanism for such a huge state oil company IPO is the first of its kind in history and will vary from any other IPO for private companies. Before the topic of an IPO was publicly broached, the Kingdom’s wise leaders consulted top industry professionals in the oil and finance sectors for thorough analyses of how to best proceed. If the decision is made to list the IPO domestically instead of internationally, this will take place because it is the most profitable choice. It is time that the Kingdom looked to what is best for its own economy. Why shouldn’t the Kingdom float its own state oil company on its own stock exchange?

It would in fact be a great thank you from our leadership to give the Saudi population a vote of confidence in enabling the Saudi people to own a portion of Saudi Aramco. This would be a boost to the Saudi stock market capitalization and a benefit to national industry. It’s essential to remember that just five percent of Saudi Aramco is being offered in the IPO. This shows that this is just a taste of the national assets that privatization would bring into the hands of investors.

Dr. Faisal Mrza

@faisalmrza

Energy and Oil Marketing Adviser (Former OPEC / Saudi Aramco)