Saudi Aramco's 5% flotation ‘needs effective planning’

Updated 09 October 2016

Saudi Aramco's 5% flotation ‘needs effective planning’

JEDDAH: Well-placed industry sources confirmed on Saturday that Saudi Aramco will sell shares in the “entire business” and not just in its refining or distribution operations.

As reported earlier, the company plans to sell a stake of approximately 5 percent — a move that, experts say, could value the company in the trillions of dollars and could result in its overtaking Apple Inc. as the world’s largest listed company.
The 5 percent sale was first announced by Deputy Crown Prince Mohammed bin Salman in April; it is part of Saudi Vision 2030 which aims to reduce dependence on oil revenues.
The oil giant will decide “very soon” on the list of investment banks and advisers to handle the flotation, Saudi Aramco CEO Amin H. Nasser told Bloomberg in Bahrain two days ago.
“We are listing a part of the entire company, and not just downstream,” he said, referring to operations including refining and distribution.
Industry sources pointed out that Energy, Industry and Mineral Resources Minister Khalid Al-Falih too had spoken in the past about the 5 percent “including all operations of the company.”
“The company is readying internal financial statements in preparation for the IPO,” an industry source told Arab News.
In the Bloomberg interview, Nasser exuded confidence and said the IPO was going very smoothly.
“We are on target,” he said. “We have made a lot of progress so far.”
The company plans to list shares on the Saudi stock market and is also considering bourses in London, Hong Kong and New York, Nasser said.
The company seeks to double its total production capacity for natural gas, including shale gas, from 12 billion cubic feet per day over the next 10 years, he said.
“We are one of the few companies that is still investing. We will continue to invest in our core business. Our rigs are increasing, and our overall activities are too,” he said.
“Gas is very important to fuel industries, especially in the petrochemical sector,” Nasser said.
The use of gas in power-generation and manufacturing also frees up more crude oil for export, he added.
The CEO’s comment was met with instant approval from oil industry experts.
“Saudi Aramco’s flotation, in my opinion, can be a success if planned well,” Tamer El Zayat, senior economist at the National Commercial Bank, told Arab News.
“Ostensibly, the CEO’s announcement reflects the Saudi government’s keenness to integrate its economy with the global one,” El Zayat added.
“Selling shares in the entire business and listing on international bourses will require accountability, transparency and adopting international standards and practices, which will bode well with investors,” he said.
“Yet, timing will be crucial, especially that global capital markets might be facing a bout of uncertainty and additionally to avoid draining domestic liquidity, in already a dire state,” El Zayat said.
He said that although the process of opening the Saudi stock market to qualified foreign investors had faltered so far, attracting SR1 billion till date, Saudi Aramco flotation in my opinion can be a success if planned well.”
Local economists see Saudi Aramco’s partial privatization plans as a boon for the private sector and the non-energy areas of the Saudi economy.
Analysts estimate that Saudi Aramco generated higher revenues than Apple and Microsoft combined in 2014, before the oil crash that began in the middle of that year.
Saudi Aramco outlined a plan known as In-Kingdom Total Value Add (IKTVA) last year, when the CEO said the company would spend more than $300 billion over the next 10 years, of which 70 percent would be local content.
One of IKTVA’s goals is to double the percentage of locally produced energy-related goods and services to 70 percent of the total spent by 2021.
Local economists see Saudi Aramco’s partial privatization as a boon for the private sector and the non-energy areas of the Saudi economy.
“The partial privatization and listing of Aramco will surely attract foreign investors, boosting portfolio inflows,” Jadwa Investment said in a recent report.
The revenue the IPO brings in will be funneled into the Public Investment Fund.
The fund’s aim is to finance strategic investments at home and abroad, which could give a much-needed boost to straggling Saudi industries outside the energy sector.
Analysts expect the restructuring of the PIF, with its new mandate of investing 50 percent of its non-Aramco assets abroad, will contribute to significantly increasing the equity investment component of portfolio returns in the future, thus helping to diversify current account inflows.
In a recent address to attendees of the Oxford Energy Seminar in London, CEO Nasser outlined some key factors that will play a role in what he described as a “bright horizon” for the company, for the Kingdom, and even perhaps for the energy industry in general.
Nasser also discussed Saudi Arabia’s Vision 2030 in his speech, describing it as “a comprehensive blueprint for the Kingdom’s future” envisioning a strong, thriving Saudi Arabia built on a diversified and sustainable economy, and a nation capable of competing at a global level while offering full, high-quality employment to its people.
In summing up and looking at the overall market ahead, Nasser expressed a sense of optimism for the industry.
“We view current market challenges as a passing storm set against an otherwise bright horizon,” he said.

Permian shale output closes gap with Saudi Arabia as rig count doubles, confirming US’ powerhouse status

Updated 21 March 2019

Permian shale output closes gap with Saudi Arabia as rig count doubles, confirming US’ powerhouse status

  • Exxon’s 1.6 million acres in the Permian means it can approach the field as a “megaproject”
  • The majors’ Permian investments position the field to compete with Saudi Arabia as the world’s top oil-producing region

NEW MEXICO: In New Mexico’s Chihuahuan Desert, Exxon Mobil Corp. is building a massive shale oil project that its executives boast will allow it to ride out the industry’s notorious boom-and-bust cycles.
Workers at its Remuda lease near Carlsbad — part of a staff of 5,000 spread across New Mexico and Texas — are drilling wells, operating fleets of hydraulic pumps and digging trenches for pipelines.
The sprawling site reflects the massive commitment to the Permian Basin by oil majors, who have spent an estimated $10 billion buying acreage in the top US shale field since the beginning of 2017, according to research firm Drillinginfo Inc.
The rising investment also reflects a recognition that Exxon, Chevron, Royal Dutch Shell and BP Plc largely missed out on the first phase of the Permian shale bonanza, while more nimble independent producers, who pioneered shale drilling technology, leased Permian acreage on the cheap.
Now that the field has made the US the world’s top oil producer, Exxon and other majors are moving aggressively to dominate the Permian and use the oil to feed their sprawling pipeline, trading, logistics, refining and chemicals businesses. The majors have 75 drilling rigs here this month, up from 31 in 2017, according to Drillinginfo. Exxon operates 48 of those rigs and plans to add seven more this year.
The majors’ expansion comes as smaller independent producers, who profit only from selling the oil, are slowing exploration, and cutting staff and budgets amid investor pressure to control spending and boost returns.
Exxon CEO Darren Woods said on March 6 that Exxon would change “the way that game is played” in shale. Its size and businesses could allow Exxon to earn double-digit percentage returns in the Permian Basin even if oil prices — now above $58 per barrel — crashed to below $35, added Senior Vice President Neil Chapman.
Exxon’s 1.6 million acres in the Permian means it can approach the field as a “megaproject,” said Staale Gjervik, head of shale subsidiary XTO Resources, whose headquarters was recently relocated to share space with its logistics and refining businesses. The firm also recently outlined plans to nearly double the capacity of a Gulf Coast refinery to process shale oil.
“It sets us up to take a longer-term view,” Gjervik said.
The majors’ Permian investments position the field to compete with Saudi Arabia as the world’s top oil-producing region and solidifies the US as a powerhouse in global oil markets, said Daniel Yergin, an oil historian and vice chairman of consultancy IHS Markit.
“A decade ago, capital investment was leaving the US,” he said. “Now it’s coming home in a very big way.”
The Permian is expected to generate 5.4 million barrels per day (bpd) by 2023 — more than any single member of the Organization of the Petroleum Exporting Countries (OPEC) other than Saudi Arabia, according to IHS Markit. Production this month, at about 4 million bpd, will about double that of two years ago.
Exxon, Chevron, Shell and BP now hold about 4.5 million acres in the Permian Basin, according to Drillinginfo. Chevron and Exxon are poised to become the biggest producers in the field, leapfrogging independent producers such as Pioneer Natural Resources.
Pioneer recently dropped a pledge to hit 1 million bpd by 2026 amid pressure from investors to boost returns. It shifted its emphasis to generating cash flow and replaced its CEO after posting a fourth-quarter profit that missed Wall Street earnings targets by 36 cents a share.


Meanwhile, Shell is considering a multibillion-dollar deal to buy independent producer Endeavor Energy Resources, according to people familiar with the talks. Shell declined to comment and Endeavor did not respond to a request.
Chevron said it would produce 900,000 bpd by 2023, while Exxon forecast pumping 1 million barrels per day by about 2024. That would give the two companies one-third of Permian production within five years.
At first, the rise of the Permian was driven largely by nimble explorers that pioneered new technology for hydraulic fracturing, or fracking, and horizontal drilling to unlock oil from shale rock, slashing production costs. The advances by smaller companies initially left the majors behind. Now, those technologies are easily copied and widely available from service firms.
Surging Permian production has overwhelmed pipelines and forced producers to sell crude at a deep discount, sapping cash and profits of independents who, unlike the majors, don’t own their own pipeline networks.
Even as the majors have ramped up operations, the total number of drilling rigs at work in the Permian has dropped to 464, from 493 in November, as independent producers have slowed production, according to oilfield services provider Baker Hughes.
Shell, by contrast, plans to keep expanding even if prices fall further, said Amir Gerges, Shell’s Permian general manager.
“We have a bit more resilience” than the independents,” he said.
In west Texas, the firm drills four to six wells at a time next to one another, a process called cube development that targets multiple layers of shale as deep as 8,000 feet.
Cube development is expensive and can take months, making it an option only for the majors and the largest independent producers. Shell has used the tactic to double production in two years, to 145,000 bpd.
The largest oil firms can also take advantage of their volume-buying power even if service companies raise prices for supplies or drilling and fracking crews, said Andrew Dittmar, a Drillinginfo analyst.
“It’s like buying at Costco versus a neighborhood market,” he said.
The majors’ rush into the market means smaller companies are going to struggle to compete for service contracts and pay higher prices, said Roy Martin, analyst with energy consultancy Wood Mackenzie.
“When you’re sitting across the negotiating table from the majors, the chips are stacked on their side,” he said.
The revival of interest in the Permian marks a reversal from the late 1990s, when production had been falling for two decades.
“All the majors and all the companies with names you’ve heard left with their employees,” said Karr Ingham, an oil and gas economist. “Conventional wisdom was this place was going to dry up.”
Chevron was the only major that stayed in the Permian. It holds 2.3 million acres and owns most of its mineral rights, too, but until recently left drilling to others.
But this month, CEO Mike Wirth called the Permian its best bet for delivering profits “north of 30 percent at low oil prices.”
“There is nothing we can invest in that delivers higher rates of return,” Wirth said this month at its annual investor meeting in New York.
Matt Gallagher, CEO of Parsley Energy Inc, calls the majors’ investments “the best form of flattery” for independents operating here.
Parsley holds 192,000 Permian acres — most of which was snatched up on the cheap during oil busts — and sees its smaller size as an advantage in shale.
“We’re not finished yet,” Gallagher said. “We can move very quickly.”
The majors have greater infrastructure, but independents continue to innovate and design better wells, said Allen Gilmer, a co-founder of Drillinginfo.
“Nothing is a bigger motivator than, ‘Am I going to be alive tomorrow?’” Gilmer said.
“Hunger and fear is something that every independent oil-and-gas person knows — and that something no major oil-and-gas person has ever felt in their career.”


5.4 million

The Permian Basin is expected to generate 5.4 million barrels of oil per day by 2023, more than any single OPEC member other than Saudi Arabia.