Along the King Fahd Highway in downtown Riyadh, signs of the nation’s wealth glitter and dazzle. Monuments include the massive Kingdom Centre — instantly recognizable by the giant bottle-opener feature formed by its two wings — and the beautiful and futuristic Al Faisaliyah Center. New ones are still rising, like the King Abdullah Financial District, still under construction: a reminder of the fat years of high oil revenues under the previous monarch.
On nearby Tahliya Street, lined with young Saudi Arabian men watching black-robed, headscarfed women saunter past, crowds throng into US-style shopping malls flaunting the world’s priciest and most luxurious brands.
Saudi wealth — whether in downtown Riyadh or Knightsbridge — is highly conspicuous, and they have the colossal Saudi Aramco oil corporation to thank for it.
Ilustration: Mountain people
Locals were stunned by the sudden news of a possible sale of part of the company that has been synonymous with their nation’s history almost since its foundation. Uncertainty about exactly what it would mean has not been laid to rest by the cautious statement confirming the impending plan to float the business later issued by Aramco’s headquarters in the eastern province of Dammam.
There was also concern that news of the momentous decision was first aired in an interview given to foreign media by the powerful Saudi Arabian Deputy Crown Prince Mohammed bin Salman.
“Aramco is our spine and they suddenly announce this,” said Fawziah al-Bakr, an education expert and women’s activist.
Aramco’s history is the story of the “discovery and development of the greatest energy reserves the world has ever known and the rapid transformation of Saudi Arabia from desert kingdom to modern nation state,” the company said.
Its pledge has always been to “maximize the value of the country’s petroleum reserves for the benefit of the kingdom’s citizens.”
Exactly how that would be done if foreign investors can buy shares is a troubling and unanswered question, critics say.
However, a 75 percent plunge in global crude prices over the past 18 months to US$30 per barrel — caused by a downturn in demand and a supply glut that Saudi Arabia and fellow OPEC members have refused to address in their determination to drive US fracking rivals out of business — has caused financial pain to producing nations around the world, who had grown used to funding pretty much their entire economies and social programs on black gold.
The Saudi budget deficit rocketed last year to 15 percent of GDP and more than US$100 billion of the nation’s US$650 billion of foreign reserves has already been used to fill up gaps left by depleted oil revenues.
This year’s income and expenditure plan has involved a huge rise in the price of petrol, electricity and water, along with a pledge to introduce a value-added tax of 5 percent, together with tariffs on sugary drinks and tobacco.
A 60 percent increase in petrol prices — to US$23 per liter — has shocked many Saudi Arabians, but not all motorists.
“Yes, the cost of petrol has gone up, but it is still probably the cheapest in the world,” said a Bangladeshi taxi driver stuck on King Fahd Highway.
Mohammed, a Saudi government official, is more worried about future rises than this one, but the increase has triggered alarm, with some car owners rushing out the night before it took effect to fill their tanks and save the equivalent of a few US dollars.
At least Saudi Arabians, who live in an autocratic state where free education and other social benefits have effectively been traded by unspoken compact for political freedom, are not alone. Last week, the neighboring Gulf state of Bahrain, just off the coast of Saudi Arabia’s eastern province, also raised the price of fuel by 60 percent — for the first time in 33 years. Oman had already done the same.
The possible sell-off of at least part of Aramco, previously considered Saudi Arabia’s crown jewel, has stunned the global energy and investment sectors as much as locals.
One Wall Street report claimed a US financial adviser was forced to stop his car because he was laughing so much from sheer incredulity when the Aramco float news broke, but plans for an initial public offering (IPO) by what might be most secretive — but almost certainly the most valuable — company in the world have been confirmed by its chairman, Khalid al-Falih.
“We are considering ... a listing of the main company and obviously the main company will include upstream,” he said last week, thereby indicating that the flotation plan could give access to the nation’s 260 billion barrels of oil reserves and 263 trillion cubic feet of gas.
Among the more than 100 oil and gas fields controlled by Aramco — which began life as the California-Arabian Standard Oil Company in 1933 — are Ghawar, the world’s largest onshore oil location, plus Safaniya, the biggest offshore field in the world.
The scale of the Aramco empire dwarfs every other corporation in the world. Its oil assets alone are 10 times more than those held by the world’s largest publicly quoted oil company, ExxonMobil. If the Texas-based business has a stock market value of US$400 billion, that would make Aramco’s oil assets potentially worth US$4 trillion.
Energy analysts admit they find it impossible to accurately calculate the exact worth of a company that boasts of producing 9.5 million barrels of oil a day — one in every eight of the world’s production — but some estimates go as high as US$10 trillion. That is 10 times the combined value of Apple and Alphabet — the new parent company of Google.
They know Aramco has huge oil and gas reserves, a raft of refineries and other business interests, but details are scant. The company does not publish its accounts or even its revenues, never mind its profits.
What is known about Aramco by anyone outside the company tends to come from bland information provided by its official Web sites or an annual review of “facts and figures” — the last one covering 2014.
There is no mention of the flotation proposal on its Web site. The latest bit of news concerns what appears to be a low-key joint venture with a German chemical company called Lanxess. There is no date given for when it was announced, nor who to contact should one require more information.
A plan to float even a relatively small slice of the business would change all that.
“You cannot take public funds [foreign investment] without sufficient operating and financial results being made available,” said Fadel Gheit, a veteran oil analyst with the Oppenheimer brokerage in New York.
“You would not choose to float a company when commodity prices are so low, but the Saudis are clearly in need of money and part of it is their own fault. They ignored plenty of warnings that US shale production was on its way into the market. It is too late to stop that now,” he added.
What Aramco’s annual review does say is that the company — alongside its mountainous oil and gas reserves — controls more than 3 million barrels a day of refining capacity, both inside Saudi Arabia and abroad.
There are some joint refining ventures with foreign oil companies inside the kingdom, such as the Saudi Aramco Shell Refinery Company, which operates a plant in Yanbu — on the northwest Saudi coast — with Royal Dutch Shell.
There are similar local refining partnerships with Exxon, Total of France and Sinopec of China, while Shell has the most substantial joint venture with Aramco outside Saudi Arabia in its Motiva Enterprises operation in the US.
More recently, there have been moves to establish chemical plants at refineries through tie-ups with the likes of Dow Chemical of the US and Sumitomo Chemical of Japan. The US firm has a joint venture, Sadara, building a facility at Jubail, while the Japanese firm are involved in a joint venture at the Petro Rabigh plant on the Red Sea.
In addition, there are oil exploration agreements inside Saudi Arabia with Shell and for gas development with Russia’s Lukoil, Sinopec, and a consortium of Italy’s ENI and Spain’s Repsol. Industry experts say these deals give little real access to rich resources and have produced little of benefit to the foreign companies so far.
Aramco, until recently, owned a fleet of large tankers to ship oil abroad through a separate subsidiary it established called Vela International Marine. However, the business — one of the biggest of its kind in the world and which still handles much of Saudi Arabia’s oil exports — was recently transferred to the ownership of the Saudi national shipping company.
Aramco continues to keep a network of international offices in locations such as Paris, The Hague and London. It also keeps a research base in Aberdeen, center of UK North Sea activity.
The assumed wisdom about Aramco is that it is relatively well run, but is used as a personal piggy bank by the ruling family as well as an income to fund government social and other policies. There are question marks over why the company is reported to be running four Boeing 747s and four other jets as well as a number of soccer stadiums around the nation.
Aramco’s crude is especially attractive because it almost gushes out of the ground with barely the prod of a stick. Operating costs of US$12 per barrel make it the cheapest in the world after Kuwait and five times cheaper than the UK North Sea.
Shell, Total and Sinopec would almost certainly look at taking a stake in any Aramco IPO for strategic reasons, but whether sovereign wealth funds or big Western pension funds would queue for a stake is less certain at a time of low crude prices.
Gheit thinks they might, but traditional institutional investors would need to see audited financial information and know they would be able to pursue legal remedies in the event of a dispute.
Any float would ultimately come down to price and — royal — pride. In the meantime, expect to see Western investment bankers, lawyers and PRs — who want a slice of what is likely to be lucrative advisory work in the run-up to any IPO — joining the line on King Fahd Highway.
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