
Saudi Aramco Plans World's Biggest IPO - aburan28
https://www.bloomberg.com/quicktake/saudi-aramco
======
eric_arrr
I've got your prospectus right here: [http://rameznaam.com/wp-
content/uploads/2014/10/Welcome-to-t...](http://rameznaam.com/wp-
content/uploads/2014/10/Welcome-to-the-Terrordome.png)

~~~
toomuchtodo
And [http://rameznaam.com/wp-content/uploads/2015/04/Nature-
Clima...](http://rameznaam.com/wp-content/uploads/2015/04/Nature-Climate-
Change-Batteries-Cheaper-than-2020-Projections.png)

As soon as we hit $100/kWh in the next year or two, that oil is worthless [1]
(Tesla will supposedly hit this target when the Gigafactory is at full
capacity).

Clean energy investments year over year:
[https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iWfsqt_Qmf9...](https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iWfsqt_Qmf9Q/v1/-1x-1.png)

[1]
[https://flowcharts.llnl.gov/content/energy/energy_archive/en...](https://flowcharts.llnl.gov/content/energy/energy_archive/energy_flow_2013/2013USEnergy.png)

~~~
adventured
That oil will still be worth trillions for the next two decades. It won't be
worthless until the global economy has moved very substantially off of oil. It
won't even plunge _toward_ worthless until demand begins to dramatically fall
off, which isn't going to occur in the next two or three years.

The Saudis will likely have time to liquidate a very large portion of Aramco
and its oil assets before the market for oil dries up too much. In 20 years
they can exhaust over half of their oil reserves (by some estimates, they'll
be a net oil importer by 2030-2035). They'll sell well over ten trillion
dollars worth of oil in that time.

It will take decades to shift the global economy and industry off of oil. In
ten years, the majority of cars on the road globally will still be burning
gasoline. That hopefully won't be the case in 20 though.

~~~
Gibbon1
> (by some estimates, they'll be a net oil importer by 2030-2035).

That's kind of a 'funny' observation. Saudi Arabia can't ever be an oil
importer since the only thing they have to exchange for oil is oil.

~~~
tw04
I'm fairly certain the rest of the world would be happy to exchange cash for
oil or oil for cash.

~~~
Gibbon1
Saudi Arabia doesn't have any real way to earn cash except by selling oil.
There is the whole Mecca thing, but that's it.

~~~
tw04
I'm not sure what part of this you're not getting. They're selling off a small
stake of the state-owned oil company to diversify how they make money. They'll
use the remaining money + new income from the corporations they'll build/buy
to import oil. This isn't a hard concept to follow.

------
Innercode
This may well be the biggest attempt ever to get out at the right time

~~~
r00fus
Peak Oil, then?

~~~
makomk
Peak profits from oil. They're desperately trying to sell as much as possible
before renwewables eat their lunch. This is why the free market cannot solve
global warming by itself - we'd need to leave lots of oil in the ground and
countries like Saudi Arabia have a huge amount of latitude to drop prices in
order to ensure this doesn't happen. It's not enough to just be cheaper than
oil, you need to be cheaper than anyone can afford to drop the price they sell
oil at to undercut you.

~~~
velodrome
_They 're desperately trying to sell as much as possible before renwewables
eat their lunch._

This is not the case. It may be in the next 10-20 years but the real reason is
due to fracking. The fact is that the US / Canada has added additional supply
to the market and no longer imports as much oil from OPEC.

[http://www.drillingcontractor.org/wp-
content/uploads/2012/04...](http://www.drillingcontractor.org/wp-
content/uploads/2012/04/web_Graph1.jpg)

~~~
lern_too_spel
makomk is right. US crude production is dropping since Saudi Arabia increased
supply to drop oil prices below what the other suppliers can support.
[https://ycharts.com/indicators/us_crude_oil_field_production](https://ycharts.com/indicators/us_crude_oil_field_production)

~~~
velodrome
US crude is sold at market prices and is NOT specifically dependent on Saudi
Arabia supply increases (e.g. another oil producer could cut production and
zero out that increase).

Also, the price fell long BEFORE Saudi Arabia increased production (about a
year). This was due to excess supply and why Saudi Arabia tried to cut
production in 2014.

[http://www.artberman.com/wp-content/uploads/Chart_Market-
Bal...](http://www.artberman.com/wp-content/uploads/Chart_Market-Balance-
FEB-2016-1.jpg)

[https://ycharts.com/indicators/saudi_arabia_crude_oil_produc...](https://ycharts.com/indicators/saudi_arabia_crude_oil_production)

~~~
lern_too_spel
You have it exactly backwards. Saudi Arabia removed production caps in 2014.
Shale fields cannot produce oil profitably at the resulting prices and are
shutting down.
[http://mobile.reuters.com/article/idUSKCN0JA0O320141128](http://mobile.reuters.com/article/idUSKCN0JA0O320141128)

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Analemma_
If it were possible to get in short on this (it's usually not, right after an
IPO), that would be the best investment decision anyone's ever made. $2
trillion is ridiculous. Remember when PetroChina hit $1 trillion market cap in
2007, and it was supposed to be a huge milestone for publicly-traded state oil
firms? Now they're at a little over a tenth of that. Every reason to expect
that the same thing will happen here.

~~~
andrewjl
It's not so cut and dry. One reason Aramco is worth so much is that the cost
to extract their remaining reserves (on a per barrel basis) are one third of
costs in the U.S.

A collapse of oil prices may decimate the energy industry in the developed
world (which extracts from offshore or unconventional sources) and would mean
Aramco becomes the only supplier. Now obviously they wouldn't be able to raise
prices beyond a certain level, but they have many decades of guaranteed cash
flow remaining.

~~~
rrggrr
Even if their costs to remove are 1/3 lower its high sulfur and far from
consumers, and its priced in dollars. Refining and logistics costs are high.

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nostromo
If the Saudi government thought that the company was a good investment, they
would invest in it themselves and reap all the rewards, even if it meant they
had to print currency to do so. In other words, they'd continue doing what
they've done all along.

Instead this seems like an "exit" event. A way to sell at the top and use the
funds from the greater fools for other means.

~~~
tw04
It's a way to diversify their investments for the long-term health of their
country. They need other sources of income...

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neptunespear
Saudi Aramco's IPO would never have happened without Prince Mohammad bin
Salman (Salman might be the king, and Mohammad bin Nayef might be the crown
prince, but MbS is "Mr. Everything") consolidating power and courtiers.

Okay, HN, crush my expectations. How is MbS not actually the liberal reformer
that western media fawns over and says he is?

Also, what odds do you you have on rival factions in the House of Saud ganging
up on MbS and pulling a King Faisal? I have 15/1 odds that the other princes
will at least attempt to push him out of prominence (they probably won't kill
him)--the Saudi royal family has 15,000 princes, after all.

Finally, I think that "perestroika, GCC style" might be the best or the worst
thing to happen in the Middle East in over 50 years. Think about it. Iran has
used its large, wealthy, well-educated population (80 million people) to
maintain a geopolitical foothold in the Middle East and Central Asia, even
under crushing international sanctions. With an absolute theocratic monarchy,
an old-world economic structure based on clan ties, and a population of only
32 million (21 million if you subtract out the expatriate population), Saudi
has been able to amass otherworldly concentrations of wealth. Imagine how much
change those Saudi trillions could do for the country, the region and the
world at large the if MbS's dream of a post-oil economy and economic
liberalization came through. (Plus, Saudi gets on the good side of the west so
it doesn't have to worry about sanctions.) Imagine if Saudi's population
boomed and became more and more educated. 40, 50, 60 million. Imagine how the
geopolitical fisticuffs with the Ayatollah and the Revolutionary Guard might
turn into a détente, or get even _worse_.

~~~
tcoppi
Even assuming that's the kind of Saudi Arabia Mohammad bin Salman wants, it
will take generations to lift the people off the oil teat and into a
productive western, capitalist economy. It might just barely be starting to
pay off near the end of his lifetime, and that's being pretty optimistic IMO.
He isn't just fighting the economy either, but the cultural and religious
attitudes of the people.

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tossaway1
The company is valued at $2 trillion, the value of the IPO is expected to be
5% of that. Title seems misleading...

~~~
dang
Yes, and also rewritten in a way that breaks the HN guidelines. We've replaced
it with a subtitle from the article.

(Submitted title was 'Saudi Aramco Announces Largest IPO in history valued at
$2 trillion'.)

~~~
aburan28
Ah, I apologize for the misleading initial title

~~~
dang
Appreciated! Not too big a deal.

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salimmadjd
There is a geopolitical element here.

What happens when US mutual funds and retirement funds are invested in this
stock?

Will the mutual funds lobby the US Government to put sanctions on Iran to give
Saudis more output and more revenue to ultimately benefit the funds?

What happens if Saudis are linked further to 9/11 or to other activities that
goes against US' interests. Will the banking sector lobby the congress against
taking any actions against Saudis?

~~~
JamesBarney
The open shares that Exxon(market cap 370B) has on the market exceeds the
number of shares that Saudi Aramco will have(100B). So this won't have a very
large impact.

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Animats
If you thought owning part of a company in China was difficult, consider the
problems of owning part of one in Saudi Arabia.

~~~
cloudjacker
A is not difficult, and B is also won't be difficult as it will list on the
London Stock Exchange or one in New York

~~~
Animats
It's not that you can't buy shares. It's that ownership doesn't give you any
influence over the thing. Look at Yahoo's troubles with Alibaba.

~~~
pavlov
Influence seems theoretical anyway due to the enormous size of the company.

How much would you need to buy of a $2 trillion company to get a board seat?
10% might not be enough even in an ordinary public company, and that's $200
billion in this case...

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defen
They're trying to get out now by selling to suckers who don't realize that
most of their oil assets are worthless. I don't mean that they've falsified
accounts of how much oil they have, I mean that most of it is going to stay in
the ground because it won't be worthwhile to pump it out.

~~~
mathattack
Selling 5% barely qualifies as getting out. Perhaps it's a way to funnel money
to specific families or people, but it would be very hard to sell the
remaining 95%.

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cloudjacker
hm, just $100,000,000,000 for less than 5% of Saudi Aramco. That's quite low,
valuing themselves at 2 trillion. Prior pie in the sky estimates had put them
at 10 trillion dollar company. So maybe after the independent audit they'll
release the shares, wall street traders will bid it up 500% and then they'll
impress everyone with that share price performance and 10 trillion dollar
valuation.

~~~
mars4rp
10 trillion is crazy! the US GDP is 16 trillion and world economy worth 100
trillion, to think one company worth this much is ....

~~~
barrkel
Theoretical 10 trillion is a stock; GDP is a flow.

[https://en.wikipedia.org/wiki/Stock_and_flow](https://en.wikipedia.org/wiki/Stock_and_flow)

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finnh
> It's valued at more than $2 trillion — or about four times the biggest
> technology giants

Powerful reminder of how pervasive & huge the energy economy is.

... now imagine that, if you refined oil to reduce its mass by a factor of a
million or so, you ended up with an edible substance that extended your
lifespan by DECADES.

Stakes is high, right? Nicely done, Frank Herbert.

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rrggrr
Contrarian view. The IPO forces oil producing states to cut production and
raise prices or watch the market value global oil (For which the Saudi
holdings are proxy) at discounts that will wreak havoc on sovereign and
corporate balance sheets. This is a game of chicken.

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jshorty
I'm curious about their long-term outlook. My understanding is that OPEC
counties are currently desperate enough for money that they can't agree to
limit output, thereby forcing the price further down. Anyone have better
insight here?

~~~
mars4rp
Saudies want Iran to cut production too, but Iran was forced to cut production
because of sanctions and they missed lots of revenue when oil price was high.
Iran is not going to cut production or cap it. Saudies have 2 bad choices let
the prices fall or stay the same or let cut production and let Iran get more
revenue and lose market share to her.

~~~
salimmadjd
Iran is trying to get back to the production quotas of pre-sanction period.
Saudis do not want that (they opposed the Iran deal).

They also want to prevent any investment in Iran oil sector by lower the lure
of potential windfall from foreign investors until the next US administration
is in power to potentially reverse Obama's policy.

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mars4rp
They say global economy worth $100 trillion. the whole oil industry should
worth $18 trillion, is oil %18 of oil economy? I say no. so Aramco doesn't
worth $2 trillion either.

~~~
nickles
The article states that Saudi Aramco controls ~20% of the world's oil supply.
The $18 trillion valuation of the global oil industry that you offered would
imply a $3.6 trillion valuation for Saudi Aramco. Obviously there are many
nuances to this, but $2 trillion is not unreasonable superficially. It's
important to note that state owned oil companies tend to trade at lower market
caps after IPO for a variety of reasons.

~~~
mars4rp
>Saudi crude accounts for about 1 out of every 9 barrels of global production.

~~~
ianferrel
Production is analogous to revenue, and is the wrong measurement.

Reserves matter more for market cap.

~~~
mars4rp
ok, still they have %20 of world reserve. so oil reserves worth 10 billions
and %10 of world economy! in US we have more oil consumption than any other
nation, do you spend %10 of your money on oil???

~~~
oldmanjay
Probably more than 10%. Recall that fuel costs are priced into every single
item that gets shipped, which is basically all of them.

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chatmasta
Now that's what I call an exit!

~~~
nashashmi
Actually it is just a primer for the bigger exit.

The best time to exit for a large scale venture like this is between right
before the peak and right after it.

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mmanfrin
$2trillion would be 2.5x the next largest sovereign fund (Norway). That is
enormous.

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pbarnes_1
"Only" a $100bn IPO.

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Aelinsaar
This is really not the time I'd be investing that heavily in Aramco. 30 Years
ago, certainly, now... not so much.

~~~
eternalban
30 years ago you would have needed a blue water navy and nuclear weapons.

~~~
khuey
And the fact that you won't next year tells you something ...

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eternalban
exactly what I was thinking (& lets just leave it with ... ;)

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oh_sigh
Huge growth potential here!!

