Saudi Aramco is Eyeing IPO to Offload Refining Assets

Saudi Arabia’s announcement that it is considering selling part of the national oil company in a public offering this year suggests that the world’s largest oil company is following the global trend of divesting downstream refining assets, according to 33% of the respondents to a Gulf Intelligence Industry Survey of 250 energy professionals operating in the Middle East.

A quarter of respondents (24%) said Saudi Aramco’s surprise announcement in early January is a message from the Kingdom to the world that it has enough valuable energy assets to easily navigate the current era of lower oil prices. Oil prices marked a 12-year low when they fell below $30/bl in mid-January and pressure is mounting on many governments in the Gulf whose budgets are heavily supported by energy revenues. But Saudi Arabia’s wealth, which includes vast foreign reserves, is expected to buffer the Kingdom against low oil prices for now.

“Saudi Aramco can navigate lower oil prices without even resorting to these sort of assets (IPO),” Marios Maratheftis, Global Chief Economist at Standard Chartered Bank said. The foreign exchange reserves in Saudi Arabia are 1.5x the money they have in circulation domestically on the ground, Maratheftis added.

The majority of Gulf countries have taken the unprecedented move to reduce fuel subsidies in a bid to offset growing budget deficits. Saudi Arabia, the UAE and Kuwait were among the countries in the Gulf to introduce fuel subsidy cuts in 2015. Another wave of subsidy reforms is expected in the Gulf this year, which is likely to include Oman’s first subsidy cuts.

H.E. Dr. Emmanuel Ibe Kachikwu, Nigeria’s Minister of State for Petroleum Resources and OPEC President (2015) said an emergency meeting of OPEC members may be called during the first quarter of this year to address lower oil prices. Half (51%) of respondents said oil prices are unlikely to rise above an average of $40 a barrel this year, while nearly a third of respondents (28%) cited $30/bl.

The GI Industry Survey also reported that 15% of respondents said Saudi Aramco’s move may trigger other state-owned energy companies, including those in the Gulf, to consider IPOs as a way to counter the negative impact of lower oil prices.

“Saudi Aramco’s announcement of a possible IPO could be the thin edge of a wedge of countries and companies across the region that are looking at assets and saying, ‘how can we free up some capital to navigate this period of lower oil prices?’” Trevor Sikorski, Head of Natural Gas, Coal and Carbon at London-based research consultancy Energy Aspects said.

Surprisingly, only 7% of respondents said the most significant consequence of the potential IPO would be insight into a treasure trove of data about the Kingdom’s oil reserves. Saudi Aramco has long been highly secretive, but public data suggests the figure is 265 billion barrels – over 15% of global oil deposits. For its part, Saudi Aramco said it is considering an IPO as part of the Kingdom’s government’s privatization initiative and wider economic reforms.

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