The $1.7 Trillion Crude Awakening
Saudi Aramco is the state-owned oil and gas (O&G) giant of Saudi Arabia. It’s the subject of a much-anticipated initial public offering (IPO) later this month, and yesterday, it struck what most would consider the motherlode. Pricing shares worth 1.5% of the company on the Tadawul exchange, each looks set to fetch 32 riyals-a-piece ($8.53). Putting that into context, we’re dealing with an implied valuation of $1.7 trillion here for Saudi Aramco!
Western investors in the sector stood fixated at the sheer scale of proceedings, despite the lack of plans for an international listing. As the most profitable company in the world, Aramco could easily steal Microsoft’s crown as the most valuable company in the world by market capitalisation. However, the Saudi royals are tough to please.
Worryingly for his messenger, Saudi Crown Prince Mohamad bin Salman was looking for a $2 trillion valuation and more foreign interest in the company. Aramco is still strong, though. Trump’s protectionist policies is unlikely to disarm it, and worryingly for climate fighters, fossil-fuels could be kept alive thanks to the regional appetite for Aramco shares. Most demand came from the Middle East, so politicians could come under pressure to keep the stock supported for its backers.
Why so much local enthusiasm? Aramco’s pitch to investors has been very neatly crafted so far as a “patriotic duty” following attacks on its facilities in September. The company is boasting “low carbon emissions,” the epic scale of its proven oil reserves, super-low costs of drilling, and the most convenient geological formations. The elephant in the room is obvious, however. Sustainable foreign investors aren’t going to touch an oil company run by a human rights-abusing government. Not with a 10-foot barge pole!
The most profitable today, sure, but investors don’t buy today. They buy tomorrow! The bigger they are, the harder they fall?