Saudi Aramco, a private company owned by the Saudi government, is aiming for an IPO that could raise about USD 100 billion and attract a valuation in the range of USD 1 trillion to USD 2 trillion this year. But the process has dragged on as key aspects of the share sale remain unsettled.
Ideally, prices need to move at least USD 10 higher – to around USD 70 per barrel – for one and two years ahead for the government to be happy to launch the listing, said the sources, who declined to be named as the information is confidential.
Many industry experts are focusing on the current level of oil prices. However another key consideration for Saudi officials in floating up to 5% of the state oil producer is where they see prices in one to two years’ time, two sources close to the IPO said.
Brent oil futures for March 2019 are valued now at USD 60.60, about a USD 4 discount to the USD 64.50 current – spot – price, and for two years away at USD 57.70.
The IPO is the centerpiece of Saudi Arabia‘s plan to diversify its oil-dependent economy. It also stands to create a huge windfall for the army of bankers and lawyers involved in the offering.
Saudi energy minister Khalid al-Falih and finance minister Mohammed al-Jadaan, says that the government will proceed with the IPO when the prices reach targets.
Officials added, Spot and long-dated prices often do not move together. Immediate prices are more influenced by developments such as politically driven supply outages or natural disasters, while prices further down the curve are more affected by broader expectations of supply and demand, factoring in issues such as OPEC output policy and the rise of electric vehicles.
Spot prices rose to a three-year high above USD 70 in January but have since slid nearly 15% together with a broader decline in the stock markets due to fears about global inflation as well as renewed concerns about rising U.S. oil production.
While Saudi officials think USD 60 per barrel is a reasonable price for oil in the long term, the rally at the start of 2018 has provided an incentive to bump up the Aramco valuation, according to a third source close to the IPO. However, inside Aramco, concerns of spur U.S. shale production can lead to a loss of Saudi market share.