Saudi Aramco's listing a sign Saudi govt eager to get deal done

Exclusive report by Siti Radziah Hamzah

KUALA LUMPUR, Nov 12 -- After years of delay, the listing of the world’s biggest oil company, Saudi Aramco, which is slated for next month, is seen as a sign that Saudi Arabia's government is hurrying to get the deal over and done with.

Asia School of Business’ assistant professor of Management Dr Renato Lima de Oliveira said the listing exercise was likely influenced by investors’ move to reduce their portfolio of investments in oil and gas companies due to many reasons, including climate activism and the growing competitiveness of renewable energies. 

"It is likely that by the end of the next decade, oil consumption will hit a peak and gradually decline. 

"Natural gas is still expected to grow and play a role as a dispatchable source of energy needed to increase the share of renewables in the grid. This is because renewables are intermittent, and that is a problem until we develop utility-scale energy storage," he told Bernama in an email interview. 

Saudi Arabia’s oil giant Saudi Aramco recently announced its intention to proceed with an initial public offering (IPO) exercise on the Saudi stock market, which would be the world’s largest IPO in history.

But Saudi Aramco still needs to clear one very important hurdle—its valuation.

The Saudi government claimed Aramco is worth US$2 trillion to raise proceeds for economic reforms, but banks have begged to differ, putting the valuation closer to US$1.5 trillion. 

Saudi Aramco issued the prospectus for the IPO on Nov 9 with the actual listing on the domestic Tadawul exchange expected to take place some time in December.

However, the oil company did not provide the exact size of its planned share offering but said it aimed to sell up to 0.5 per cent of its shares to individual retail investors, with the IPO process set to begin Nov 17. 

Meanwhile, de Oliveira noted that natural gas had a brighter future, but Saudi Arabia was a relatively gas poor country, with close to 90 per cent of its production comprising crude oil. 

Therefore, the medium-term scenario was not positive for oil and gas companies, particularly those focused on crude oil, he pointed out.

"So, you may want to anticipate the future and sell shares of the company now, before a technological breakthrough makes the future even less beneficial for oil and gas producers," he added. 

However, de Oliveira said he did not see the IPO having significant consequences on the rest of the oil market.

“It had the positive effect of disclosing more information about Saudi Aramco, including profitability levels, cost of production, and reserves, but what has been disclosed was not surprising.

“Aside from that, the only consequence would be in case of a major failure of the IPO, which would be a very negative signal for the industry. However, this risk has been mitigated by floating shares only at the local stock market -- a minuscule part of the total valuation of the company -- less than 10 per cent," he added.

Asked on the infrastructure risk after the recent drone attack on Saudi Aramco's crude processing facilities, de Oliveira said the attack had a very short-term effect on oil prices, which had bounced back to the US$60 level. 

"Investors are either discounting heavily the possibility of similar attacks or believe that new suppliers, like shale producers from the United States or offshore oil from Brazil, are making Saudi Arabia’s role as a swing producer and guarantor of the stability of the global oil market less relevant," he noted.

On Sept 14, a drone attack on Saudi Aramco's crude processing facilities in Abqaiq and the Khurais oilfield knocked off 58 per cent of Saudi Arabia headline crude production. 

Yemen's Houthi rebels claimed to be responsible for the attack but the western world blamed it on Iran.

Nevertheless, Saudi Aramco said it did not expect the attack on its oil plants to have a material impact on its business, operations and financial conditions. 

-- BERNAMA