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Saudi Aramco IPO: What Investors Can Expect

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Oct. 29 2019, Published 11:13 a.m. ET

Saudi Aramco’s IPO will finally debut on the Tadawul stock exchange on December 11, according to Reuters. The IPO has kept investors waiting since Crown Prince Mohammed Bin Salman announced it about three years ago. Saudi Aramco is an integrated oil and gas giant in Saudi Arabia.

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Saudi Aramco’s IPO finally arrives

According to the Reuters report, Saudi Aramco will announce the beginning of the IPO on November 3. The company will announce the declaration of transaction price on November 17. Saudi Aramco will start the subscription on December 4. Meanwhile, the stock will start trading on December 11.

Initially, Prince Mohammed aimed for a valuation of $2 trillion for the company. He planned to offload 5% stake at that time. However, the company could get a lower-than-expected valuation due to weaker oil prices. Saudi Aramco plans to offload about a 1%–2% stake on its domestic exchange. Later, the company might target international stock exchanges with the rest of the 5% stake.

Still, Saudi Aramco’s IPO will be one of the largest IPOs—reportedly over $20 billion. According to another Reuters report, Saudi Aramco has chosen around nine banks for the IPO. The banks include JPMorgan Chase, Morgan Stanley, and Saudi Arabia’s National Commercial Bank.

Prince Mohammed aims to lower the country’s dependence on oil. Falling oil prices have shaken petrodollar economies’ foundations. Saudi Aramco’s IPO will play a key role in diversifying the economy.

Saudi Aramco’s global influence

Notably, Saudi Aramco is one of the largest oil and gas producers worldwide. The company produced about 13.2 MMboepd (million barrels of oil equivalent per day) in the first half of 2019. Saudi Aramco invests in various mega projects to sustain its upstream volumes. The company funded the Marjan and Berri field increment programs and the Fadhili gas plant.

Saudi Aramco’s upstream output is much higher than ExxonMobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP). In the first half of 2019, ExxonMobil and Shell produced 3.94 MMboepd and 3.67 MMboepd, respectively. Chevron and BP produced 3.06 MMboepd and 2.64 MMboepd, respectively, in the first half of 2019.

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Saudi Aramco is also one of the biggest refiners globally. The company’s refining throughputs were at 4.6 MMbpd (million barrels per day) in the first half of 2019. In comparison, ExxonMobil and Chevron’s throughput was at 3.9 MMbpd and 1.5 MMbpd in the first half of 2019. Shell and BP’s throughput was at 2.6 MMbpd and 1.7 MMbpd, respectively, during the same period.

Mega profits

According to a Bloomberg report, Saudi Aramco is the world’s most profitable firm. The company had earnings of $68 billion in the first nine months of 2019. As a result, Saudi Aramco’s IPO is creating ripples throughout the market.

However, lower oil prices impacted the company’s earnings. In the first half of 2019, Saudi Aramco’s earnings were $46.9 billion compared to $53.0 billion in the first half of 2018. Weaker oil prices impacted other companies in the industry. In the first half of 2019, ExxonMobil reported earnings of $5.5 billion—a 36% YoY drop. Also, Chevron’s earnings fell marginally to $6.9 billion during the same period.

In the first half of 2019, Saudi Aramco paid dividends of $46.4 billion—higher than ExxonMobil. Notably, ExxonMobil’s dividend payments were $7.2 billion during the same period. Chevron’s cash dividend payments were $4.5 billion in the first half of 2019.

For the first time, Saudi Aramco disclosed its financial performance. In the report, Saudi Aramco’s president and CEO, Amin H. Nasser, said, “Despite lower oil prices during the first half of 2019, we continued to deliver solid earnings and strong free cash flow underpinned by our consistent operational performance, cost management and fiscal discipline.”

To learn more, read Saudi Aramco Got Its Maiden Credit Rating.

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