Saudi retreat on oil IPO highlights dearth of reliable information on world oil reserves
Since late 2016 the financial media has been abuzz about what would likely be the biggest initial public offering (IPO) ever: The sale of 5 percent of the world’s largest oil company, Saudi Aramco, which is wholly owned by the government of Saudi Arabia. The IPO with its required disclosures would shed light on the inner workings of the company for the first time since it was nationalized in 1980 and lead to independent verification of its oil reserves and other assets.
It would be a large first step in unmasking the murky world of national oil companies (NOCs), the reserves of which are thought to represent 90 percent of the world’s total reserves of oil and natural gas according to one estimate.
With estimates that Saudi Aramco is worth $2 trillion, the sale of 5 percent to public shareholders potentially represents $100 billion, a valuation that would make such an IPO an all-time record and result in roughly $1 billion in fees for the lucky bankers handling the deal.
All that anticipation, however, has now come crashing down as the Saudi government seeks the funds it might have gotten from an IPO through other avenues. So, what happened?
First, oil prices rose significantly. When the Saudi government officially confirmed that it was seeking an IPO for Aramco in October 2016, Brent crude, the world benchmark, averaged just under $50 per barrel that month. While the IPO was being considered earlier that year, oil had dropped below $30. Last week it closed just below $75.
The government was thought to be desperate to reduce its rising deficits—due in large part to a precipitous drop in oil prices—by selling a part of the company. That seems an unlikely reason for the sale since the Saudis have ample money in a sovereign wealth fund and substantial credit with major banks.
…click on the above link to read the rest of the article…
