Aramco’s IPO: The world’s most unique offering
Saudi Arabian Oil Company (Saudi Aramco), the world’s giant government-owned oil company, begun its initial public offering (IPO) on Nov. 17.
The IPO of Aramco attracted not only local attention but also worldwide interest as well, since it is the world’s largest and most-profitable oil company.
The IPO is considered a unique offering, since the company is the world’s largest integrated oil and gas company, evidenced by its production capacity and financial strength. In the first six months of this year, the company produced 13.2 million barrels per day of oil equivalent, including 10 million barrels per day of crude oil (including blended condensate). This level of production has made the company’s crude oil production account for approximately one in every eight barrels of crude oil produced globally from 2016 to 2018.
One of the major advantages of Aramco compared to the major international oil producers is its unique position as the lowest upstream lifting cost producer globally as of Dec. 31, 2018. The company’s average upstream cost was $2.8 per barrel of oil equivalent produced in 2018. In addition, the company’s upstream capital expenditures for the upstream averaged $4.7 per barrel of oil equivalent produced.
Aramco is a major refining company with a gross and net refining capacity of 4.9 and 3.1 million barrels per day respectively as of Dec. 31, 2018, which places the company the fourth-largest integrated refiner in the world.
One of the most competitive strengths of Aramco is its higher operating cash flow, free cash flow, earnings before interest and taxes (EBIT), earnings before interest, tax, depreciation and amortization (EBITDA) and return on average capital employed (ROACE) against each of the five major international oil companies (ExxonMobil, Shell, Chevron, Total and BP). For example in 2018, Saudi Aramco reported EBIT and EBITDA of $212.8 and $223.8 respectively compared to EBIT and EBITDA of each of the five major international oil companies, which were between $19 and $39 and $34 and $61 respectively.
What makes Aramco’s IPO unique its long-life proved reserves, the lowest lifting costs in the world as well as its capital expenditures per barrel of oil equivalent.
Finally, the higher operating cash flow, free cash flow, EBIT, EBITDA and ROACE than each of the five major international oil companies and its intention to declare aggregate ordinary cash dividends of at least $75 billion with respect to the calendar year 2020, make the IPO the most attractive investment locally and internationally.
Talat Zaki Hafiz is an economist and financial analyst.