Saudi Aramco takes steps to maximize IPO valuation

Updated 20 June 2017
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Saudi Aramco takes steps to maximize IPO valuation

DUBAI: The government of Saudi Arabia and Saudi Aramco are taking further steps toward maximizing the value of the state-owned oil giant in preparation for the sale of shares to citizens and international investors next year, according to reports.

The measures reportedly include moving some liabilities from Aramco to the government, as well as clarifying the relationship between the oil company and some of the non-oil projects it funds within the Kingdom.

According to a report by the Financial Times (FT), Aramco is looking to present potential investors with a set of “pristine” financial accounts designed to back up the official valuation of $2 trillion put on the company, the largest oil group in the world.

A spokesman for Aramco declined to comment on the report because the matters were still under consideration.

Another person familiar with the matter said that preparing detailed financial accounts was a normal part of the preparation process for an initial public offering (IPO) of shares on a stock exchange.  

There has been some skepticism among international energy analysts that the $2 trillion valuation figure will be reached, but — following a change to the Kingdom’s treatment of oil company taxation earlier this year — independent valuations have been moving upward toward the target.

One factor thought to be affecting investor sentiment has been Aramco’s historic financial support of non-oil projects, ranging from hospitals to sports stadiums.

The spokesman said that such projects were “in the long-term commercial interest of Saudi Aramco and have no material impact on its result.”

In addition to the measures recently taken and the taxation change, Aramco is also believed to have commissioned a new estimate of its overall reserves, vital for deciding valuation and is working with advisers on deciding a dividend policy, which will help determine investor appetite for the shares in any IPO.

The FT, citing four people briefed on the matter, said that the moves “reflected efforts to present a streamlined set of financials to investors.”

It added that an instruction has been issued to shift historical debts from foreign governments, including Jordan and Iraq, from Aramco’s accounts on to the government’s books. 

Under a separate resolution the Kingdom plans to create a mechanism — via a special tax deduction — to compensate Aramco for the financial cost of subsidizing fuels such as petrol for domestic motorists and gas for power generation, the FT added.

It also said that payments owed to Aramco by state entities, such as the national airline Saudi Arabian Airlines, which is also known as Saudia, and the domestic utility Saudi Electricity Company (SEC), will be moved to the Saudi Ministry of Finance.

Aramco is believed to be preparing historic 2015 and 2016 financial statements alongside pro-forma accounts for 2017 to investors for the first time ahead of the IPO.

The market flotation of Aramco will be by far the biggest IPO in history, with a value of $100 billion if, as has been officially suggested, 5 percent of the shares are sold on a $2 trillion valuation.

It is the centerpiece of the Vision 2030 strategy aimed at reducing the Kingdom’s dependence on oil and at transforming the national economy, and will be part of a $300 billion plan to privatize assets held by the Saudi government.

People familiar with the situation say that Aramco has been in talks with the stock exchanges in New York and London with a view to listing some of the shares on those exchanges, in addition to the Tadawul in Riyadh and possibly an Asian stock market.

• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai


Angola battles to revive oil exploration as output declines

Updated 16 November 2018
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Angola battles to revive oil exploration as output declines

  • Without another mega-project like Total’s Kaombo on the horizon and fields getting old, Africa’s second-largest crude producer is facing a steep decline
  • Sonangol, the state oil company, is negotiating contracts for new blocks with oil majors and Angola plans to hold an auction next year

LUANDA: On Saturday, nearly two decades after securing the initial rights, Total’s CEO, Patrick Pouyanne, was in Luanda to snip the ribbon on a $16 billion oil project. It is not clear when he, or his peers, will be celebrating in Angola again.

Without another mega-project like Total’s Kaombo on the horizon and fields getting old, Africa’s second-largest crude producer is facing a steep decline unless it can revive exploration in what was once one of the world’s most exciting offshore prospects.
Sonangol, the state oil company, is negotiating contracts for new blocks with oil majors and Angola plans to hold an auction next year, the first tender for exploration rights since 2011.
It is a race against time for a country where oil accounts for 95 percent of exports and around 70 percent of government revenues. Luck will also play a part, as it always does in exploration where finding oil can never be guaranteed.
But without new projects, output could fall to 1 million barrels per day by 2023, according to the oil ministry. That is down from 1.5 million today and nearly half of what Angola was producing a decade ago. The country risks having its OPEC quota cut and is struggling to ensure the long-term feed for its $10 billion liquid natural gas plant.
President Joao Lourenco won an August 2017 election promising an “economic miracle” in Angola, which despite its oil wealth struggles to provide basic services to a mostly impoverished population that is growing at 3 percent a year. But falling oil production means a third consecutive contraction is expected in 2018, even while annual inflation runs at 18 percent.
To turn things around, Angola has asked international oil companies to the table, offering better fiscal terms and more collaboration.
With the time from exploration to first oil on new areas anything from five to 10 years, Angola is also offering tax breaks to encourage companies to link existing marginal discoveries to operating production platforms.
There are signs the measures are working, though some oil experts wonder at what cost for the southwest African country.
“The level of exploration activity in Angola is beginning to change,” Sonangol’s chairman, Carlos Saturnino, said at Saturday’s inauguration.
He expects between five and 10 new concessions to be signed next year.
Exxon, he said, had shown interest in some blocks in southern Angola’s unexplored Namib basin, while advanced discussions are being held with BP, Equinor and ENI for the rights to the ultra-deep offshore blocks 46 and 47.
BP and ENI declined to comment. Equinor and Exxon did not immediately respond to a request for comment.
Total, which operates 40 percent of Angola’s production, plans to drill its first exploration well in four years. Beneath 3,630m of water on block 48, it will be one of the world’s deepest.
“We hope it will be a play-opener for the ultra-deep in Angola,” said Andre Goffart, senior vice president for development. “We are seeing a new wave of exploration in Angola.”
These signs of fresh exploration come after a period of near-paralysis due to a lack of drilling success, a slump in oil prices and a deteriorating relationship between Sonangol and the oil majors.
Angola’s offshore reserves are expensive to explore and develop, making it a hard sell for shareholders when oil is at $40. The number of rigs operating off Angola’s shores dropped from 18 in early 2014 to just two in 2017, according to oil services company Baker Hughes.
The steep drop in prices from 2014 came just as companies were smarting from the failure to discover Brazil-like oil
reservoirs beneath a layer of salt on the African side of the Atlantic. The search for the “Angolan pre-salt” resulted in some of the most expensive dry wells ever drilled and sapped exploration appetite.
Critics say the situation was exacerbated by Isabel dos Santos, the former president’s daughter and previous chair of Sonangol, under whose leadership new projects ground to a halt. Dos Santos denies allegations of mismanagement, saying she helped turn around an almost bankrupt company.
“There are few places in the world right now where the oil majors are in as good a negotiating position as here,” said one international oil executive in Luanda on condition of anonymity.
Some local experts fear the deals Angola is striking are too beneficial for the companies, although details remain private.
“If Angola gives away too much it could create problems further down the line,” said Jose Oliveira, an oil specialist at the Catholic University in Luanda.
But the country has little choice given its imminent production decline and a lack of money or expertise to lead the drilling campaigns itself.