Saudi Aramco cuts costs and considers IPO amid low oil prices

Saudi Arabia flag
Source: DollarPhotoClub

Much has been said about the pressure rock-bottom oil prices have put on the U.S. shale industry. Yet recently it has emerged that Saudi Arabia – the country that exacerbated the pain felt by U.S. shale producers by deciding not to cut production and shore up world oil prices – has also not remained unscathed.

Since global oil prices fell sharply last year, the country’s oil giant Saudi Aramco has been cutting costs, slowing some projects, shelving some projects altogether, and reforming its energy and utilities subsidies. According to Reuters, in November Aramco asked oilfield service companies to extend discounts to next year as it cuts costs.

In a letter to employees published by the state oil group’s magazine the Arabian Sun, Chief Executive Amin Nasser commented on the company’s cost-cutting strategy: “We have proactively adjusted our budgets and intensified our fiscal discipline, without compromising our long-term strategic aspirations, and we will continue to do so.”

Today, however, Saudi Aramco went beyond cost-cutting when it announced that it is considering a share sale. The move, which is understood to be motivated by an oil-price collapse to below $35 a barrel, as well as mounting tensions with its arch-rival Iran, would make Saudi Aramco the world’s most valuable company, with analysts estimating that a full listing of Aramco would be worth more than $1 trillion.

In an interview with The Economist, deputy crown prince Mohammed bin Salman said “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.”

Meanwhile, the company released a statement on Friday confirming it was looking at a number of options regarding a sale. “Saudi Aramco confirms that it has been studying various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the company’s shares and/or the listing of a bundle its downstream subsidiaries.”

According to The Economist, analysts believe that it is likely that to begin with only part of the company is floated – perhaps 5 percent. Having said that, an IPO of only 20 percent of the oil giant would fund Saudi Arabia’s budget for a year.

Sources: The Economist, Reuters, BBC News

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