Gearing up for a blockbuster IPO: Saudi Aramco then and now

Gearing up for a blockbuster IPO: Saudi Aramco then and now

When oil giant Saudi Aramco announced its plans to list five percent of its shares publicly, global markets from Hong Kong to New York lined up to compete for a part of the listing – and not just because it’s the most profitable company in the world.

Having evolved from humble beginnings into a full-fledged, integrated petroleum enterprise, Aramco is known in Saudi Arabia as a pioneer for rapid growth and change.

With production costs as low as $4 per barrel of oil and reserves 10 times larger than those of ExxonMobil, Aramco’s influence is felt worldwide.

As the Kingdom embarks on its Vision 2030 economic reform plan, it is targeting a valuation of $2 trillion in Aramco’s planned initial public offering (IPO).

In comparison, two of the world’s largest listed companies – Apple and Amazon – have a combined market capitalization of $1.8 trillion.

At this valuation, the proposed five percent share sale of Saudi Aramco would be worth $100 billion, a staggering 400 percent greater than the current largest IPO of Ali Baba, which happened in 2014.

The purpose of the IPO is to put Saudi Arabia on the fast track to diversifying its economy away from oil and transforming key sectors including mining, healthcare, and tourism in line with Vision 2030.

“If Aramco is not put for IPO, it means it will take us 40-50 years to develop the mining sector. It will take us 40 years until we develop the local product and it will take us long years to develop logistical services, just like we wasted 40 years in the past while trying to develop these sectors,” Crown Prince Mohammed bin Salman Prince Mohammed said in an interview broadcast on Al Arabiya back in 2017.

Now, with the upcoming IPO a cornerstone of the Kingdom’s reform plans, Aramco hasn’t always been as we know it today. Here’s a look back at how it all started.

Al Arabiya English looks back
The oil company was born in 1933 out of a concession agreement signed between Saudi Arabia and the Standard Oil Company of California, otherwise known as SOCAL (now Chevron).

Saudi Arabia’s King Abdulaziz, who at the time insisted on including a clause directing the company to provide opportunities for Saudi Arabian citizens, launched the agreement.

According to documents seen by Saudi Arabia’s Crown Prince, the idea of selling shares in the company had been discussed under King Abdulaziz.

In 1938, Aramco struck oil, and from the late 1940s onwards, the company started to expand rapidly.

In 1973, the Saudi Arabian government bought a 25 percent in Aramco, and increased its stake to 60 percent the following year. By 1980, the Kingdom completed its acquisition and has owned 100 percent of Aramco ever since. That’s when the company became known as Saudi Aramco.

Four years later, the company welcomed its first Saudi Arabian President, Ali al-Naimi, who also served as the Kingdom’s energy minister from 1995 to 2014.

This was the start of Aramco’s transformation from an oil exporter into a globally integrated petroleum enterprise. The world’s most profitable – and possibly most valuable – company has not looked back since.

A truly global company
During the first Gulf War in 1990, Saudi Aramco displayed its strength as a global energy leader when it stepped up to boost oil output by nearly 30 percent in order to maintain a steady supply and rein in record-high prices.

At the time, global energy markets were caught completely off guard when Iraq invaded Kuwait, starting a war between two of OPEC’s biggest crude oil producers.

The following years were relatively conflict-free, allowing Aramco to spread its wings further in global markets. The company bought a 35 percent stake in the SsangYong Oil Refining Company, called S-Oil since 2000, in South Korea.

Aramco went on an acquisition spree for the rest of the decade and picked up stakes in major oil firms, including a 40 percent interest in Philippines’ largest crude oil refiner Petron Corporation, and a 50 percent stake in Greek refiner Motor Oil (Hellas) Corinth Refineries S.A.

Embracing technology
By the late 1990s, terms like computer, software, and simulation had started appearing on company agendas. Saudi Aramco, which sat on some of the world’s largest crude reserves, began looking for ways to use technology to boost the discovery and extraction of oil.

The result of these efforts was “POWERS” or the “Parallel Oil-Water-Gas-Reservoir Simulator,” a high-resolution reservoir simulator that modelled and predicted the performance of super-giant reservoirs. It also served as a foundation for more powerful Saudi Aramco simulation software developed in the coming years.

Currently, the company is emerging as a fast adopter of technologies such as artificial intelligence, blockchain, and cloud computing. Earlier this year, the oil giant invested in Data Grumbo Corp, a Houston-based blockchain-as-a-service company.

To an IPO and beyond
Saudi Aramco once again came under the limelight when it demonstrated to the world its capabilities as it bounced back from last month’s attacks on its core operations.

On September 14, the company’s oil-processing facilities in Abqaiq and Khurais in the Eastern Province of Saudi Arabia were damaged after being hit by drone attacks, cutting Aramco’s oil production by half and threatening five percent of the world’s global oil supply.

Aramco’s CEO Amin Nasser on October 9 said that the company was on track to regain its maximum production capacity of 12 million barrels per day by the end of November, and might hit that mark earlier than expected.

Both Nasser and Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman reiterated the Kingdom’s readiness for the upcoming IPO.

“I want to move on … we in the energy industry in Saudi Arabia, we have got a few challenges, we have got an IPO and we want to make sure it’s a successful IPO,” Prince Abdulaziz said at an energy conference last week in Moscow.

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