Saudi Aramco invites Petronas to participate in its IPO

Aramco Petronas

Saudi Aramco has approached state-owned Malaysian oil company Petronas (Petroliam Nasional Bhd) to participate in its Initial Public Offering (IPO).

The information was supplied by Petronas on Wednesday. This measure could help strengthen the bond between both companies as Aramco is seeking investors for its IPO.

The Saudi government is planning to sell 2% of Saudi Aramco on December 11.

Awaited IPO

On Sunday, Saudi Arabian crown prince Mohammed bin Salman authorized the company’s initial public offering. The prince assured there is sufficient support from local producers for what will probably be a record share sale.

This partial privatization will be the biggest change in the Saudi oil industry since the company was nationalized in the 1980s. Aramco, which extracts 10% of the oil in the market at its giant fields located in the kingdom’s arid deserts, is regarded as the most profitable company worldwide and the backbone of the kingdom’s social and economic stability.

The IPO was initially suggested by the prince in 2016. However, it was delayed several times because international investors opposed the $2 trillion valuation.

A prior plan to launch the IPO in mid-October was delayed after bankers saw a moderate response from investors. Most likely, the deal will largely depend on Saudi money. It is unclear whether the prince would be willing to accept a lower valuation.

Aramco executives are meeting with investors from global institutions and have approached governments in the Gulf and Asia, including China.

This sale is a key component of Prince Mohammed’s Vision 2030 program to turn the Saudi economy around and end the kingdom’s dependence on oil exports. The revenue from this IPO will boost the stability of this OPEC member.

Aramco and Petronas strengthening their alliance

This approach comes as Petronas is nearing the start of commercial operations at its $27 billion petrochemical and refining project, a complex built in cooperation with Aramco and located South of Malaysia. Commissioning is scheduled for November.

The refinery is a joint venture between Petronas and Saudi Aramco with the capacity to produce 750,000 tons of polyethylene and 900,000 tons of polypropylene.

The new production will turn Petronas into a dominant supplier in south Asia. The state-owned oil company will likely aggressively aim for cooperation from neighbors like Indonesia and Vietnam.

A giant in the oil business

Explorers from Standard Oil Company first discovered oil in Saudi Arabia in 1938. This was the birth of a company known as Arabia American Oil Company. By 1980, the Saudi government bought all shares from their original shareholders and was the company’s sole owner. Eight years later, it officially established the Saudi Arabian Oil Company (Saudi Aramco).

Aramco’s reserves stood at 260,200 million barrels of oil equivalent in 2017, more than the combined reserves of Exxon Mobil Corp., Chevron Corp, Royal Dutch Shell Plc, BP Plc, and Total. These reserves have an estimated lifespan of 54 years.

The company produced 10.3 million barrels per day in 2018. According to Aramco, it has the world’s lowest production cost ($2.80 per barrel). It also produced 1.1 million barrels of liquefied natural gas and 8,900 million cubic feet of natural gas per day.

This state-owned company produces, refines, and exports oil extracted in Saudi Arabia but also has refining operations around the world.

Saudi Aramco is the largest oil producer in the world, accounting for 10% of global supplies.

Last year, Aramco’s annual net income totaled 111,000 million, more than a third of the combined net income of the five majors: Exxon Mobil, Shell, BP, Chevron, and Total.

With 76,000 employees in 2018, Aramco operates in the oil industry, research facilities, and offices in Asia, Europe, and America, with offices in Beijing, New Delhi, Singapore, New York, London, and Houston, among others.

For more information, check Energía16

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