Forget The Hype, Aramco Shares May be Valued At Zero Next Year

[Tom Kirkman + 8,860]

I thoroughly enjoyed reading this article. 

Presented without additional comment, from Oil Price main news site:

Forget The Hype, Aramco Shares May be Valued At Zero Next Year

... Bewilderingly for those with a functioning memory, the Saudi reaction to the NOPEC threat is that – if it is passed – then the Saudis and OPEC will destroy the U.S. shale oil industry. It specifically stated that if the NOPEC bill became law then OPEC would split into its individual country constituents and each would boost production to their maximum levels. This would be done with the explicit aim of pushing oil prices down to below the US$30 per barrel psychological support level. This message was initially conveyed to the U.S. via its ally the UAE and has subsequently been reiterated both by it and by other U.S.-friendly OPEC members.

Presumably once they had stopped laughing in the White House, the reaction would have been fairly sanguine, based on the previous attempt by the Saudis and OPEC to do exactly the same thing in exactly the same way from 2014 to 2016.

During those two years alone, OPEC member states lost at least a collective US$450 billion in oil revenues from the lower price environment, according to the IEA. They are still dealing with trying to fill in holes in their foreign exchange reserves and budgets accrued as oil prices were pushed down from over US$100 pb of WTI to below US$30 pb. Saudi Arabia itself moved from a budget surplus to a then-record high deficit in 2015 of US$98 billion and spent around US$250 billion of its foreign exchange reserves over that period that even senior Saudis have said are lost forever. Facing sizeable budget deficits every year until 2023 at the earliest, even by the most optimistic projections, Saudi’s need for a Brent oil price of over US$84/85 pb this year – the budget breakeven level – appears almost existential in nature.

So bad is its current situation that it recalls the comment in October 2016 from the country’s deputy economic minister, Mohamed Al Tuwaijri, that: “If we [Saudi Arabia] don’t take any reform measures, and if the global economy stays the same, then we’re doomed to bankruptcy in three to four years.”  

 

[John Foote + 1,135]

Oddly enough one of the reasons to not IPO was as a national oil company, monopolistic behavior was legal. As a commercial venture, IPO thank you very much, they are open to anti-trust behavior, even without NOPEC. 

From day 1 I've thought there was massive money to be made in the IPO for investors, take everything you have and short the stock. Now that probably doesn't work as long as it only remains a local issue.

MBS has opened up a can of worms, and continues to double down on losing positions.

[Marcin + 519]

@Tom Kirkman@John Foote What are talking about ?

This article was written by the journalist with a lot of imagination and lack of basic reasoning capabilities, or United States authorities finally really lost their minds. Since you guys are discussing this topic it is rather later than former.

United States cannot impose laws that are valid outside of its borders. I know that some Americans think it can, but it is just the case of hegemonic, military bullying of smaller countries, like in the case of Iran or Venezuela sanctions.

I do not know how many people are aware that this irresponsible behaviour of United States, typical imperial overstretch of sunset empires is adding to the loss of US soft power (if anything of soft power is left under Trump) and naturally support Chinese rise. Countries that are fed up with constant US military bullying would be eager to gang up with China to get some perceived independence, as Chinese primary rule in foreign policy is non-interference in domestic matters of sovereign countries.

I believe that case of blackmailing Saudi Arabia with seizure of its Sovereign Fund assets will only hasten the demise of Petrodollar.

On the other hand this policy is understandable as US should create as much havoc and destabilize the world as it has nothing better to offer at the moment to its allies. Name one positive aspect of recent foreign policy and it is not mafia like "paid protection" of smaller countries by US military.

This is again sad, because this is another time US is shooting its foot. I hope it is just imagination of this journalist.

 

Edited December 10, 2019 by Marcin
typo

[Marcin + 519]

I read it again as it is too stupid for my comprehension. US will punish Saudi Arabia for increasing output of its own natural resources, am I right ? or my reading comprehension skills need some upgrade ?

[Jan van Eck + 7,558]

1 hour ago, Marcin said:

or my reading comprehension skills need some upgrade ?

 Yup, they definitely need a major upgrade.   Sorry.

[John Foote + 1,135]

Saudi Arabia’s cash flow issues have little to do with how well Aramco runs, more with the fact Aramco has to fund the largess of MBS and family, and 20 million others. And Saudi Arabia will have to overtax Aramco to postpone their demise.

some credit must be given to the House of Saud, for 80+ years they nourished their golden goose. The latest generation is overwhelming it, and selling Aramco (IPO) just buys a bit of time. Maybe a year, two at most. They’d have sold 15% instead of 1.75%, only big global money isn’t that stupid.

this has nothing to do with USA policies, although American arms merchants, combined with MBS’s adventurism, certainly make the cash flow a lot worse. Yemen is the real loser there. 
 

it was Aramco legal that preached the folly of being a public company, I heard that personally From an OPEC market mover perspective. MBS is in some ways the epitome of Hans Christian Anderson’s prince with invisible clothes. Dissent is impossible, accelerating the demise. MBS cannot be told a harsh truth.

personally is hope they right the ship. And Iran too. But don’t expect it soon.

Edited December 10, 2019 by John Foote
Wrong word choose

[Tom Kirkman + 8,860]

9 hours ago, Marcin said:

This article was written by the journalist with a lot of imagination and lack of basic reasoning capabilities, or United States authorities finally really lost their minds. Since you guys are discussing this topic it is rather later than former.

United States cannot impose laws that are valid outside of its borders. I know that some Americans think it can, but it is just the case of hegemonic, military bullying of smaller countries, like in the case of Iran or Venezuela sanctions

Saudi Arabia continues to shoot itself in the foot.  The House of Saud is the culprit, in my opinion.  Oil nepotism (see the last sentence below).

Saudi oil firm seeks $29.4B with first offering of shares or Saudi prince's goals hinge on oil-firm stock this week

... Greg Priddy, director of global energy at consultancy Stratfor, says it seems unlikely that Aramco will try to list its shares on an exchange outside Saudi Arabia once a 12-month block on doing so expires. That's because it could undermine Aramco's valuation, which he says is being artificially bolstered domestically in the short term as it lacks large-scale foreign investors.

Rather than pursue a "more realistic valuation and course of action," Priddy said the crown prince appeared to be driven by a need for a "big win" in terms of domestic prestige and public confidence. In practice, that could weaken the prince's plan, dubbed Vision 2030, to diversify the economy away from oil.  ...

... By choosing to list locally, Saudi Arabia made it so that only Saudi nationals, expatriate residents of Saudi Arabia and Gulf nationals could buy the stock as individual investors.

"We kept it to our family and friends," Prince Abdulaziz said.  ...

 

[Zhong Lu + 845]

With the amount of skepticism towards it, stock price probably doubles within the year.  That's generally how the markets work.  

[canadas canadas + 136]

On 12/9/2019 at 11:32 PM, John Foote said:

Saudi Arabia’s cash flow issues have little to do with how well Aramco runs, more with the fact Aramco has to fund the largess of MBS and family, and 20 million others. And Saudi Arabia will have to overtax Aramco to postpone their demise.

some credit must be given to the House of Saud, for 80+ years they nourished their golden goose. The latest generation is overwhelming it, and selling Aramco (IPO) just buys a bit of time. Maybe a year, two at most. They’d have sold 15% instead of 1.75%, only big global money isn’t that stupid.

this has nothing to do with USA policies, although American arms merchants, combined with MBS’s adventurism, certainly make the cash flow a lot worse. Yemen is the real loser there. 
 

it was Aramco legal that preached the folly of being a public company, I heard that personally From an OPEC market mover perspective. MBS is in some ways the epitome of Hans Christian Anderson’s prince with invisible clothes. Dissent is impossible, accelerating the demise. MBS cannot be told a harsh truth.

personally is hope they right the ship. And Iran too. But don’t expect it soon.

To think that most of this is due to the GHAWAR oil field that has been producing for around 70 years now.  

[canadas canadas + 136]

2 hours ago, Zhong Lu said:

With the amount of skepticism towards it, stock price probably doubles within the year.  That's generally how the markets work.  

It's just like new stamp issues are listed in stamp catalogs at double face value which gives new issue collectors a false sense of value so that when they later go to sell these same new stamps they cannot even get full face for them and they have to settle for below face value.

[Zhong Lu + 845]

Does it matter? As long as you sell in time you still double your money.  

[canadas canadas + 136]

On 12/9/2019 at 10:22 AM, Tom Kirkman said:

I thoroughly enjoyed reading this article. 

Presented without additional comment, from Oil Price main news site:

Forget The Hype, Aramco Shares May be Valued At Zero Next Year

... Bewilderingly for those with a functioning memory, the Saudi reaction to the NOPEC threat is that – if it is passed – then the Saudis and OPEC will destroy the U.S. shale oil industry. It specifically stated that if the NOPEC bill became law then OPEC would split into its individual country constituents and each would boost production to their maximum levels. This would be done with the explicit aim of pushing oil prices down to below the US$30 per barrel psychological support level. This message was initially conveyed to the U.S. via its ally the UAE and has subsequently been reiterated both by it and by other U.S.-friendly OPEC members.

Presumably once they had stopped laughing in the White House, the reaction would have been fairly sanguine, based on the previous attempt by the Saudis and OPEC to do exactly the same thing in exactly the same way from 2014 to 2016.

During those two years alone, OPEC member states lost at least a collective US$450 billion in oil revenues from the lower price environment, according to the IEA. They are still dealing with trying to fill in holes in their foreign exchange reserves and budgets accrued as oil prices were pushed down from over US$100 pb of WTI to below US$30 pb. Saudi Arabia itself moved from a budget surplus to a then-record high deficit in 2015 of US$98 billion and spent around US$250 billion of its foreign exchange reserves over that period that even senior Saudis have said are lost forever. Facing sizeable budget deficits every year until 2023 at the earliest, even by the most optimistic projections, Saudi’s need for a Brent oil price of over US$84/85 pb this year – the budget breakeven level – appears almost existential in nature.

So bad is its current situation that it recalls the comment in October 2016 from the country’s deputy economic minister, Mohamed Al Tuwaijri, that: “If we [Saudi Arabia] don’t take any reform measures, and if the global economy stays the same, then we’re doomed to bankruptcy in three to four years.”  

 

Such a free fall will benefit consumers but it will destroy most of the petroleum industry.