Would this result in the most valuable company in the world?

ExxonMobil’s perch atop the oil and gas industry’s food chain may be on notice.

Stricken by the effects of the commodity downturn which it caused, oil-dependent Saudi Arabia appears to be open to almost any source of income to soften the sting of the kingdom’s 2015 record deficit of nearly $100 billion.

Muhammad bin Salman, Deputy Crown Prince of Saudi Arabia Photo Credit: The Economist

Muhammad bin Salman, Deputy Crown Prince of Saudi Arabia
Photo Credit: The Economist

That apparently includes a potential Initial Public Offering (IPO) of Saudi Aramco, its crown jewel oil company. In an interview with The Economist, Mohammad bin Salman, the deputy crown prince of Saudi Arabia, said the situation is currently being reviewed. He explains: “We believe a decision will be made over the next few months. Personally I’m enthusiastic about this step. I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around Aramco.”

What’s It Worth?

It’s basically impossible to predict a price with any accuracy (Aramco does not reveal any information on revenues and particulars on its reserve base is limited), but company officials believe it could be valued in the trillions of dollars. For comparison, giants like ExxonMobil (ticker: XOM) and Apple (ticker: AAPL) currently have respective market values of about $360 and $540 billion.

Aramco, however, is unlike the majority of XOM’s competitors. Aramco is Saudi’s state-owned oil producer and accounts for every barrel of crude generated from the world’s second largest producer. That’s why analysts believe a public offering of Aramco shares would make it the most valuable company in the world. Aramco has been wholly owned by the government since 1980.

Image Credit: Financial Times

Image Credit: Financial Times

Fadel Gheit, an analyst for Oppenheimer & Co., believes an IPO “makes a lot of sense” and says the company is likely worth $1 trillion. He figures Aramco could offer a 20% minority interest and raise $200 billion. “Aramco is still going to be run like a government agency,” he said. “The ultimate goal is going to be basically fund the country’s budget.”

Subsidies under Fire

The crown prince’s comments come just days after the ink dried on Saudi’s 2016 budget, which includes a 14% year-over-year spending decrease that will still lead to a projected fiscal deficit of $87 billion.

The shortfalls have finally spilled over to its citizens – the beneficiaries of generous government subsidies. Petrol prices jumped roughly 50% almost overnight, creating long lines at the pump and even entirely draining some gas stations of their fuel. Analysts believe reducing subsidies on water and electricity could be next.

The revelation is just the latest twist in what has already become a whirlwind year for OPEC’s de facto leader, as Saudi severed ties with Iran following a highly publicized execution. Friction between the long-tenured rivals increased in 2015, aided by Iran’s impending return to the global oil export market, threatening an added imbalance in supply and demand. Iran is currently in the process of raising capital to revise its outdated oil sector – likely to be an endeavor that would cost hundreds of billions of dollars. “Iran is dreaming that everyone is rushing to invest there,” said Dr. Hossein Askari, Iran Professor of International Business and International Affairs at The George Washington University, in an interview with Oil & Gas 360®.

Saudi’s prospects for investment are much brighter, says bin Salman. “We’re not a country new to foreign investment… I’m not just opening up to the world; I’m already open to the world. I’m only giving out opportunities.”

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