(Photographer: Kostas Tsironis/Bloomberg)

The world’s most valuable company may not be Apple Inc. That crown could instead belong to Aramco, as Saudi Arabian Oil Co. is better known. The sprawling state-owned producer, sitting atop one-fifth of the globe’s petroleum reserves, pumps more crude than the top four publicly traded oil companies combined. Crown Prince Mohammed bin Salman, the Saudi king’s influential son, says the company is worth in excess of $2 trillion, almost double the size of Apple. A much-vaunted plan to sell shares of Aramco in 2018 got postponed, raising speculation that it might be dropped altogether, but Prince Mohammed insists that the biggest initial public offering “in human history” will go ahead.

The Situation 

The kingdom’s original plan, announced in 2016, was to sell up to 5 percent of Aramco, either on the Saudi bourse and one or two overseas exchanges, or solely on the domestic exchange. That’s been pushed back to late 2020 or early 2021 to allow Aramco time to fund and complete the purchase of a $69 billion stake in Saudi Arabia’s biggest petrochemical company. Aramco sold its first international dollar bond, raising $12 billion to help fund the purchase, which it aims to close in 2019. Global investors had also balked at the valuation, with some banks pricing a 5 percent stake at $50 billion to $75 billion — way short of the $100 billion-plus foreseen by the Crown Prince. Even so, the lowest valuation would still dwarf the world record for an IPO of $25 billion by Alibaba Group Holding Ltd. The aim of the share sale is to create a war chest and prepare the country for the post-hydrocarbon age. The brutal killing of Saudi columnist Jamal Khashoggi, which a UN report said warranted an investigation of the crown prince, threatened to derail a political agenda crowded with social and economic reforms at home and an assertive foreign policy. Still, investors have returned to the kingdom and Aramco has resumed discussions with lenders about the IPO.

The Background

Explorers from the Rockefeller family’s Standard Oil empire first struck oil in Saudi Arabia in 1938. The venture became known as Arabian American Oil and went on to discover the Ghawar field, still the world’s largest onshore deposit. In 1980, the Saudi government bought out the original shareholders, all of them forebears of Exxon Mobil Corp. or Chevron Corp., and renamed the company. Aramco has fueled decades of prosperity for Saudi Arabia, a conservative Islamic state and one of the world’s last remaining absolute monarchies. It generates almost 90 percent of the government’s income and built the refineries, petrochemical plants and other infrastructure that form the backbone of the world’s 17th-biggest economy. Saudi Arabia has been the de facto leader of the Organization of Petroleum Exporting Countries, or OPEC, since the cartel was founded in 1960. It’s often been called the “swing producer” because decisions to increase or trim Saudi output drive the price of oil. Saudi crude accounts for about 1 out of every 9 barrels of global production and can be extracted for about a third of the cost of reserves in the U.S. Over the decades, Saudi Arabia has had a hand in engineering periods of lower oil prices in a bid to maintain its share of global energy markets.

The Argument 

Prince Mohammed envisions the Aramco IPO as the centerpiece of Saudi Arabia’s biggest economic shakeup since the founding of the country in 1932. But a listing on a large stock exchange such as New York or London would open Aramco to intense and unprecedented scrutiny. That’s always seemed a big leap for a traditionally closed nation that is reluctant to relinquish its hold on a national resource, but Aramco made a first step in lifting the veil on the company’s operations by releasing limited financial results as part of its bond prospectus. An IPO would also raise questions about the Saudis’ ability to preserve their historic role in world oil markets and how much influence the extensive royal family would continue to exert over its most prized asset. Investors would be looking for answers not just about the valuation but also the kingdom’s potential to raise Aramco’s taxes to fund more social or military spending. Moves by some investors to divest stocks in carbon-intensive industries such as oil also raises questions about  demand for shares and their potential performance. For the biggest oil economy, the clock is ticking as nations ramp up their efforts to reduce fossil-fuel consumption to fight climate change. Yet even with the world’s shift to cleaner fuels, oil is expected to continue providing about a third of world energy for the next two decades, leaving plenty of time yet before the window for an IPO closes.

To contact the writer of this QuickTake: Anthony Dipaola in Dubai at adipaola@bloomberg.net

To contact the editor responsible for this QuickTake: Nayla Razzouk at nrazzouk2@bloomberg.net, Andy Reinhardt

First published Aug. 16, 2016

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