Friday, November 17, 2017

ARAMCO CEO Is Delusional

Financial Times reported yesterday that Amin Nasser, the CEO of the Arabian American Oil Company (ARAMCO, currently 100% owned by the Saudi government, although originally founded by four former US oil company majors), has declared that investors should feel pleased that Crown Prince Muhammed bin Salman has arrested and purged over 200 Saudi princes, government officials, and private businessmen.  This is because this was strictly an anti-corruption move, and foreign investors can be assured that there will now be no corruption in the Kingdom. Really, he said this.

Now I declared in my post title that Nasser is delusional, but I doubt it.  I suspect that he is a very smart guy. The question is whether he can convince any potential buyers of the upcoming possibly $2 trillion Initial Public Offering of 5% of ARAMCO stock that indeed this purge sends a good signal to them about buying ARAMCO stock.  Wow, the nation will now be rid of corruption, and, no, future investor, you need have no fear of being arbitrarily arrested or having your assets seized by MbS, none whatsoever, not that you were worrying about those things previously, but now you really do not need to worry about them at all.

Of course on the very same page of the FT there was another article about how MbS's purge has rattled world oil markets, with oil prices now sharply falling after sharply rising after he made his purge.  Nobody knows what the implications are or what the heck is going on, but, hey, no problem, no need to worry, Inshallah bukra maalesh (God willing tomorrow no problem, a fave line in KSA).  In any case, Nasser's public statement will undoubtedly completely reassure everybody, and all will become extremely calm before we know it.

Oh, there is also the matter of where this IPO will happen, touted to be the largest in history.  New York and London stock exchanges have actually been competing with each other to host it, but in fact in the end this may not be such a good idea and they may not be in the running for real anyway.  According to the FT the Saudis are also considering Hong Kong and Tokyo, but at the end of the article it was floated what I have all along expected and predicted: that the IPO will be handled out of Riyadh's own exchange with specially targeted sales to specially targeted individuals, with a lot of them being local big money Saudis.  So maybe Nasser's speech was not for all the foolish foreigners, but for the well-off locals: buy when we tell you to or else you can join the officially designated-to-be-corrupt 200 plus..

Barkley Rosser


Anonymous said...

What is the real state of ARAMCO? In July this year it was in the middle of auditing its oil reserves ahead of 5% of the company being listed on the stock market. The Company generates about 90% of Saudi Arabia's revenues. The sale of some of ARAMCO was claimed to promise to offer a quick injection of funds "to help diversify the economy" as described in Saudi Arabia's Vision 2030.

However an audit of ARAMCO might not be in the best interest of the country. It's oil reserve figures are dodgy and have not been changed for many a decade. Investors on a public exchange may not be interested in investing in a company that is controlled by the government. Last month Saudi Arabia was looking at a private sale of ARAMCO stocks instead. That way ARAMCO would not have to publicly reveal anything. Maybe a sale to the Chinese?

Will the world keep purchasing oil? Are renewables outpacing oil consumption (the price of oil dropped from $108 per barrel to $50 barrel this year (2017). Some say SA needs oil at $77/barrel in order to balance the national budget. Oil may have become a too volatile a commodity to be relying so much on, as the Saudis have been doing. China's economy is struggling and this is significant as it's a major oil consumer.

Unemployment is high in Saudi Arabia and this situation does not look sustainable. said...

Nobody knows the state of ARAMCO, but nobody should underestimate the oil reserves of KSA. Price is back to rising, although Brent still some distance below where MbS supposedly wants it. Pegging on a $77 per barrel looks way too precise for how little outsiders actually know of the situation.

As I have already said elsewhere, MbS's hope of diversifying will fail, period. They will still be overwhelmingly dependent on their oil exports in 2030, which will be tough for them if indeed the world stops buying oil. However, while demand may well be lower than now, the world will still be buying quite a bit of it then, and they are the second lowest cost source in the world behind Kuwait. Just as people used to say that the US is the "Saudi Arabia of coal," well, Saudi Arabia is and will be the Saudi Arabia of oil, whatever it is worth.

I also agree that a private or de facto private sale of those 5% of shares is highly likely. Maybe the Chinese will be allowed in, but I continue to bet that a non-trivial portion of the buyers will be top level Saudis themselves.

It does look like MbS may be backing off some of his initiatives. Hariri is back in Beirut and has put his resignation as premier on hold as negotiations occur with Hezbollah, but MbS wanted that decision in return for Hezbollah withdrawing from Yemen, which has not been announced, although they may yet do it.

The other matter is that there are now rumors that the 201 arrested (a number reported by David Ignatius in WaPo) will mostly be handled by out of court settlements. The message of who is in charge has been sent, but apparently there has been some pretty serious blowback from many high level people in the royal family. He may be taking charge, but the old system is not fully gone.

Meanwhile we continue to have various US media types ready to swallow all kinds of drivel from MbS, the latest being Thomas Friedman at the New York Times, who has a new column out just nauseatingly gushing over what a progressive MbS is and how he is going to make KSA a very tolerant place. There have been some moves in that direction, from putting the religious police under control to letting women driving, but anybody overdoing this sort of propoganda spouting is likely to end up looking pretty silly, not that this will be the first time for TF.

Anonymous said...

By 2030 Saudi Arabia may be far more dependent upon water imports (or oil for desalination at home) than oil exports. Interesting times for this country in particular.

Barkley Rosser said...


Water in KSA has long been far more expensive than oil. This is nothing new. They have long had major desailinization plants, and they have long floated the idea of floating major icebergs from Antarctica to help them out, although I do not think they have ever done it.

Heck, nearly 40 years ago they were drilling two miles below the surface of the earth to get at water to irrigate wheat production at a ridiculously high cost, with them actually exporting wheat for some period of time. They were doing that to get the wandering Bedouin to settle down, who had rise up in 1979 in the Ikhwan revolt against the royal family and had seized the Grand Mosque in Mecca. It was worth a lot of oil money to get those troublemakers under control by turning them into sedentary farmers.

Anonymous said...

Thanks. I didn't know this. I wonder how much the water crisis is feeding into Saudi Arabia's military interference in Yemen?