What is the Saudi Aramco IPO?
The Saudi Arabian economy is almost entirely dependent on oil exports, and diversifying it has become crucial. As part of its plan to reduce this dependence, Saudi Arabia’s leadership recently floated part of its giant state oil company, Saudi Aramco, on the Saudi stock exchange, selling shares in what was the biggest IPO (Initial Public Offering) in history. We talk to Dr Ellen Wald, author of Saudi Inc.: The Arabian Kingdom’s Pursuit of Profit and Power, about the importance of this move to the oil and gas industry.
Can you tell us a bit about the background to the IPO?
Prince Mohammad announced the idea for the IPO in a seemingly offhand remark in 2016 during an interview with The Economist, but it was delayed for several years because the company was not in a position to list publicly. Saudi Aramco first needed to create a new fiscal regime so it could present accounting that met a modicum of international standards.
Why is it so significant?
The Aramco IPO is not immediately significant to the oil market. It is an offering of a very small portion of the company and will not impact the production of oil right now. However, it is a sign of the Saudi government’s increasing involvement in its country’s oil strategy. This could have long-term impacts.
Who can buy shares?
At the moment, shares are mostly limited to Saudi and GCC nationals, as well as regional institutions and foreign investment funds and banks. Global investors can best access Aramco shares by purchasing into a fund that invests in the company.
How was the initial sale received by the markets?
The IPO was made on the Saudi stock exchange, Tadawul,
and the company quickly rose above a $2 trillion market cap. Since then, the stock has fallen significantly. There is very low-volume trading and the initial success must be viewed in line with the influence and manipulation of the Saudi government.
How will the money raised through the IPO be used?
We don’t know how the money raised through the IPO will be used; however, we do know that Aramco will not see the proceeds of the IPO. Originally, Prince Mohammad wanted to transfer ownership of Aramco to the Saudi sovereign wealth fund before the IPO and give the proceeds to that fund. However, the transfer never occurred and no one knows where the money from the IPO went.
What does this tell us about the future of the oil industry?
The biggest concern for the future of the oil industry is that the new-found influence of the Saudi government on Aramco will mean decreased capex spending for the company. Saudi Aramco has been the leader in capex over the last few years, and a cut in spending could mean that the industry will see problems in long-term development.
What difference will the IPO make to the day-to-day business of Saudi Aramco?
The biggest difference is that Aramco cannot provide as much in the form of free services and goods to the Saudi government and people as it once did. The other difference is that the Saudi energy ministry may now be incentivised to promote higher revenue for the company, which generally would result from encouraging higher production rates.
Further Reading on Oil and Gas Activity in Saudi Arabia
The First Discoveries of Oil in Saudi Arabia
Michael Quentin Morton
In the 1930s, Chief geologist at Casoc and Aramco expat, Max Steineke revolutionised hydrocarbon exploration in the Middle East using structure drilling - which led to some of the first discoveries of oil in Saudi Arabia.
This article appeared in Vol. 15, No. 1 - 2018
The Road to OPEC 1960
Rasoul Sorkhabi, Ph.D
Holding 77% of world's proven oil reserves and delivering 41% of production, OPEC has a powerful place in our world. Here we review how OPEC began and rose to its current position.
This article appeared in Vol. 7, No. 5 - 2016
The Emergence of the Arabian Oil Industry
Rasoul Sorkhabi, Ph.D.
In terms of petroleum reserves and production, the Middle East is second to none. The stories behind the first discoveries in Bahrain, Saudi Arabia and Kuwait in the 1930s are also intriguing.
This article appeared in Vol. 5, No. 6 - 2008