Hope Malaysia does not get sucked into the IPO the Armaco is going to issue
as Oil is no longer a safe commodity to invest with so many alternative energy
sources in the markets and more to come. IPO needs trillions of Dollars and Malaysia
share maybe in the billions to buy worthless Aramco shares. Why invest in a
company which is solely an extension of the Saudi Arabian government and
follows government policy and have no business acumen at all. Look at the volatile
oil prices in the last 3 to 4 years and jobs lost by the thousands if not
millions and improvised oil producing countries all because of Ego to control
the oil prices and projection of oil power by OPEC and Saudi Arabia
Read article
below of the biggest con game in the history of Mankind after 1MDB
The world’s most valuable oil company, Saudi Aramco, is approaching its
first IPO in 2018, as the government of Saudi Arabia prepares to sell off
portions of the company in order fill a sovereign wealth fund crucial to the
country’s transition away from an oil-based economy.
Saudi Aramco is worth $2 trillion, according to Riyadh, and its five
percent initial offering could yield $200 billion. This would be the largest
IPO in history, blowing away the offering of China’s Alibaba in 2014.
The problem, however, is that the company itself may not be worth as much
as the Saudi government claims. Recent reports and growing skepticism regarding
Aramco’s actual worth have cast some doubts on whether the world’s largest IPO
will be as earth-shattering as originally thought.
The original estimateoffered by Saudi Arabia, which placed Saudi Aramco’s worth at around $2
trillion, was based on a valuation of Saudi Arabia’s oil proven reserves, 261
billion barrels. Multiplying at $8 per barrel, those reserves alone are worth
$2.088 trillion. When Saudi Crown Prince Mohammed bin Salman made that original
estimate, it garnered some skepticism:
how could any company be worth such an astronomic sum?
Now, analysts at Wood Mackenzie have conducted their own study of Saudi
Aramco, and came up with a completely different (and much lower) figure.
WoodMac puts Aramco’s true value closer to $400 billion, eighty percent less
than the Saudi estimate, and it arrived at the figure by considering future
demand and the anticipated average price of oil (on which profits will depend),
as well as Saudi Aramco’s status as a state-run company.
WoodMac doesn’t dispute the figure of 261 billion barrels lying under Saudi
Arabia and just offshore; that figure has been confirmed by independent
sources. Where things get complicated, though, is in the management and
taxation of Saudi Aramco, which does not release financial statements. It is
known that the company, which is the bedrock of the Saudi economy and the major
foundation for state finances, pays a twenty percent royalty on revenues and an
85 percent income tax, supporting the Saudi government and providing a living
for the 15,000 members of the Saudi royal family. Tax commitments of that size
could have a major impact on the company’s profitability, leaving little in
dividends, a factor WoodMac considered in its valuation
There’s also the question of investors demanding discounts for investing in
state companies. Bloomberg
noted that Saudi Arabia, while a comparatively stable Middle Eastern nation,
could encounter the kinds of problems and instabilities plaguing other
resource-rich countries with large, state-run energy companies. There are
questions surrounding the viability of the country’s long-term economic plan,
Vision 2030, which anticipates a major shift
in the Saudi economic outlook away from oil and gas and towards greater
diversity.
Bloomberg also noted that the Saudi tactic of computing the company’s price
according to its held proven reserves doesn’t add up: Russia’s Rosneft, by that
accounting, should be worth $272 billion instead of its current value of $64
billion, while the value of ExxonMobil, the world’s most valuable private
energy firm, would be fifty-three percent less.
Other commentators who spoke to Bloomberg off the record put the company’s
true value somewhere between $500 billion and $1 trillion.
WoodMac has predicted
prices in 2017 to remain relatively stable, if OPEC continues to abide by its
production agreement, and believes the average price will be as high as $57 per
barrel. But looking further ahead, the firm (and other forecasters) are
uncertain how electric cars, climate change, technological improvements and
changes in demand will affect prices.
This uncertainty
also affects the estimates surrounding Aramco’s real worth. Massive Saudi
reserves are large enough to sustain current production for another 73 years,
so the forecast looks good. But while Riyadh expects peak crude oil demand to
come in 2035, other forecasters are much more pessimistic: OPEC has indicated
that peak demand could come in as little as a
decade, while others are hinting it could come even earlier.
A major facet of the Vision 2030 plan is the surety of future world oil
demand: the Saudis must hope that Saudi crude remains attractive and
competitive, even as it moves its economy away from relying solely on Aramco’s
business. And even if the country sells off its state-run company, Saudi
interest and investment will remain closely tied to world oil, as the recent decision to
invest $7 billion in an oil processing plant in Malaysia makes
plain.
So, even if Saudi Arabia succeeds in selling off Saudi Aramco, perhaps for
$2 trillion or perhaps for much, much less, it’s economy and the well-being of
its royal family will depend on the world’s demand for oil and gas.
By Gregory Brew for Oilprice.com
