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Saudi Aramco Plans World's Biggest IPO
- Analemma_ 10y agoIf 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.
- jonknee 10y agoPetroChina's valuation in 2007 has very little to do with Aramco pricing its future IPO. That said, you can just go short oil in general, if oil demand is lagging Aramco will be worth a lot less than $2t.
- adventured 10y ago> that would be the best investment decision anyone's ever made Oh now, the best investment decision anyone has ever made, was Masayoshi Son buying a third of Alibaba for $30 million or so. I don't think shorting Aramco is going to get you a ~2,500 fold return in 14 years.
- andrewjl 10y agoIt'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 10y agoEven 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.
- paulsutter 10y agoSaudi Aramco's annual revenue is over $300B, and their reserves are more than 260 billion barrels. Oil prices have ranged from $15-ish to $140-ish since 1990. So $2 trillion doesn't seem outlandish at all for Aramco. Early angel investors in Uber have made about 10,000x, plus or minus, so even if you're right there's no potential for shorting Aramco to be the best investment ever (Uber's seed round was at 4 millionish, and the current valuation is 60 billionish).
- acchow 10y ago> Oil prices have ranged from $15-ish to $140-ish since 1990. What is the relevance of past oil prices in the future? Especially in light of photovoltaics?
- paulsutter 10y agoIf you have a conviction about oil prices that's a really easy bet to make.
- mathattack 10y agoThe danger is that you're at risk to a surge in oil prices. While the company may not be well run, if oil prices rise, you could get killed in the short. The ideal trade would have some kind of oil price hedge too.
- deleted 10y ago[deleted]
- charlesdm 10y agoI'm not so sure. Their reserves are massive + cheap to extract. Oil isn't going to go away anytime soon, even if we wanted it to. And even if the value of crude dropped another 25-50%, it's still quite valuable. The problem is that it's located in Saudi Arabia. I doubt they have decent corporate governance + non-interference from the state.
- tossaway1 10y agoThe company is valued at $2 trillion, the value of the IPO is expected to be 5% of that. Title seems misleading...
- dlhavema 10y agoisn't the valuation based on: (1.00 / (percent sold off)) * (amount the chunk was sold for) so 1/.05 = 20, and 20 * 100 billion = 2 trillion?
- dang 10y agoYes, 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'.)
- jshorty 10y agoI'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?
- Aelinsaar 10y agoI think maybe that's why they're trying to get a ton of money, and as others are saying, exit.
- mars4rp 10y agoSaudies 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 10y agoIran 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.
- woodpanel 10y agoWell at least in the short-term: Due to the oil-price shock Saudi Arabia's state earnings turned negative and at the current burn-rate are supposed to erase it's monetary assets rather in months than in years.
- chatmasta 10y agoI've heard two narratives, that being one of them. The other is that they're keeping output artificially high to lower the price of oil in hopes of "pricing out" alternative sources like shale.
- Innercode 10y agoThis may well be the biggest attempt ever to get out at the right time
- r00fus 10y agoPeak Oil, then?
- jayess 10y agoPeak Saudi oil, perhaps.
- makomk 10y agoPeak 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 10y agoThey'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/web_Graph1.jpg http://www.drillingcontractor.org/wp-content/uploads/2012/04...
- lern_too_spel 10y agomakomk 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
- chatmasta 10y agoNow that's what I call an exit!
- nashashmi 10y agoActually 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.
- Animats 10y agoIf you thought owning part of a company in China was difficult, consider the problems of owning part of one in Saudi Arabia.
- cloudjacker 10y agoA 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 10y agoIt'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 10y agoInfluence 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...
- mars4rp 10y agoThey 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 10y agoThe 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 10y ago>Saudi crude accounts for about 1 out of every 9 barrels of global production.
- ianferrel 10y agoProduction is analogous to revenue, and is the wrong measurement. Reserves matter more for market cap.
- mars4rp 10y agook, 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 10y agoProbably 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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- Aelinsaar 10y agoThis is really not the time I'd be investing that heavily in Aramco. 30 Years ago, certainly, now... not so much.
- pbarnes_1 10y agoChina will need oil for a while...
- nashashmi 10y agoThere are other reasons to invest. I believe mostly oil companies will want to take stock for the purpose of influence.
- eternalban 10y ago30 years ago you would have needed a blue water navy and nuclear weapons.
- deleted 10y ago[deleted]
- khuey 10y agoAnd the fact that you won't next year tells you something ...
- eternalban 10y agoexactly what I was thinking (& lets just leave it with ... ;)
- Aelinsaar 10y agoIt still might help to hold onto your investment...
- pbarnes_1 10y ago"Only" a $100bn IPO.
- cloudjacker 10y agohm, 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 10y ago10 trillion is crazy! the US GDP is 16 trillion and world economy worth 100 trillion, to think one company worth this much is ....
- oh_sigh 10y agoHuge growth potential here!!
- eric_arrr 10y agoI've got your prospectus right here: http://rameznaam.com/wp-content/uploads/2014/10/Welcome-to-the-Terrordome.png http://rameznaam.com/wp-content/uploads/2014/10/Welcome-to-t...
- toomuchtodo 10y agoAnd http://rameznaam.com/wp-content/uploads/2015/04/Nature-Climate-Change-Batteries-Cheaper-than-2020-Projections.png http://rameznaam.com/wp-content/uploads/2015/04/Nature-Clima... 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_Qmf9Q/v1/-1x-1.png https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iWfsqt_Qmf9... [1] https://flowcharts.llnl.gov/content/energy/energy_archive/energy_flow_2013/2013USEnergy.png https://flowcharts.llnl.gov/content/energy/energy_archive/en...
- adventured 10y agoThat 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.
- deleted 10y ago[deleted]
- ThrustVectoring 10y agoBurning gasoline isn't the problem, burning gasoline that's sourced from the ground is. It's possible to use a lot of electricity to run gasoline combustion backwards, turning CO2 and H20 into gasoline. It's currently not economical due to electricity prices, but it may be a better option to retrofit gasoline production rather than automobile fuel consumption.
- mmanfrin 10y ago$2trillion would be 2.5x the next largest sovereign fund (Norway). That is enormous.
- nostromo 10y agoIf 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.
- deleted 10y ago[deleted]
- tw04 10y agoIt's a way to diversify their investments for the long-term health of their country. They need other sources of income...
- defen 10y agoThey'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 10y agoSelling 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%.
- salimmadjd 10y agoThere 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 10y agoThe 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.
- deleted 10y ago[deleted]
- neptunespear 10y agoSaudi 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 10y agoEven 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.
- mars4rp 10y agoThe only thing I can imagine is more wahabisim, more madresa at Pakistan and other poor countries. More ISIS like terrorist groups and more terror, blood and fear for humanity.
- finnh 10y ago> 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.
- rrggrr 10y agoContrarian 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.