Saudi Aramco ‘ready’ for IPO - CFO

Author: Tom Brown

2019/08/12

LONDON (ICIS)--Saudi Aramco is ready to move forward with an initial public offering (IPO) as soon as its shareholders determine that market conditions are right to list, the CFO of the state-owned oil and gas major said on Monday.

The company has made the necessary preparations to move forward with the long-anticipated listing, and is waiting on the word from shareholders about when to take the next step, according to Aramco's CFO Khalid Al-Dabbagh.

“The company is ready,” Al-Dabbagh said, speaking on a rare broadcast press conference following the publication of the company’s first ever financial results statement on Monday.

“The timing of the IPO itself is a shareholder issue and they will announce dependent on… optimal market conditions,” he added.

The call followed renewed reports that the IPO date, which had been allowed to drift with no new schedule announced, may be back on track.

People close to the process told The Wall Street Journal earlier this month that the company, which represents the bulk of Saudi GDP, could move forward as soon as early 2020.

The publication of financial results is the latest move by the secretive group into the public eye, which Al-Dabbagh described as “part of our ongoing programme of strengthening communications with investors”.

With the transparency required by public listing reported to be one of the concerns that had delayed IPO plans, the company opened its books to ratings agencies for the rating of its inaugural $12bn bond toward the $69bn acquisition of a majority stake in petrochemicals major SABIC from Saudi sovereign vehicle the  Public Investment Fund.

With earnings before interest, taxes, depreciation and amortisation (EBITDA) of $224bn in 2018, making it one of the most profitable companies in the world, Aramco took the next step toward transparency with the publication of financial results for the first of half of 2019 this week.

Net profit slipped 12% year on year to $47bn on unchanged oil and hydrocarbon production level, on the back of lower oil pricing and higher purchasing and amortisation costs.

$46.4bn went to shareholder dividends, which Al-Dabbagh attributed to the company’s regular half-year dividend of $26.4bn and a $20bn special dividend as a result of 2018’s strong performance.

In US$ million H1 2019 H1 2018 Change
Net income 46,899 53,019 -11.5%
EBIT 92,506 101,331 -9%
Free cash flow 37,980 35,593 7%
Capital expenditure (capex) 14,470 16,464 -12%

Average realised oil pricing slipped from $69/bbl in the first six months of 2018 to $66/bbl in the first half of 2019 but, with capital expenditure of $14.5bn and free cashflow of $38bn, the company has substantially lower costs and higher profitability than the bulk of the other largest oil and gas majors.

“We have the lowest production and [exploration] costs among our peers, with high operational availability,“ Al-Dabbagh said.

“We can pursue a slower depreciation strategy to maximise [oil] recovery, and can deplete our reservoirs at much lower rates than industry norms.”

SEPARATED BY FENCES
The close of the SABIC stake acquisition, regarded by analysts as a necessary step before the company goes public, is ongoing, with a move forward to close expected in the near future, but the full extent of synergies is difficult to predict in the run-up to conclusion of the deal, according to Al-Dabbagh.

“[The] two companies… have many plans separated by fences,” he said.

“We cannot cement any figures on synergies until closing takes place, there is limited information we can use and be privy to prior to close.”

H1 2019 H1 2018 Change
Average $/bbl crude price ($) 66 69 -4.3%
Hydrocarbon production (mboe*/day) 13.2 13.2  /
Oil production (m bbl/day) 10.0 10.0  /
Refining gross throughput (m bbl/day) 4.6 4.5 2%

(*million barrels of oil equivalent)

Aramco, which is pursuing a strategy of defending its position upstream and expanding its portfolio downstream, particularly in chemicals, has also signed a letter of intent with Reliance Industries about taking a 20% stake in the India-based company’s oil to chemicals business.

Announced by Reliance on Monday, the deal would be one of the largest foreign direct investments in India and provide a platform for Aramco to tap into the country’s fast-growing domestic demand.

“[The Reliance deal] is part of our efforts to advance our global downstream, growth strategy,” said Al-Dabbagh, pictured.

“India is a large country with… growing demand. What has been announced is a letter of intent, we are at the early stages of the deal to allow us to conduct due diligence going forward.”

A weaker-than-expected economic climate so far this year, exacerbated by political tensions and the eurozone industrial slump, has brought oil demand growth down to the levels around the time of the global financial crisis, leading the International Energy Agency (IEA) to cut its forecasts for 2019 and 2020.

“We, just like you all, hope for the best,” Al-Dabbagh added.

Pictured: A site operated by Aramco in Saudi Arabia
Pictures source: Aramco

Focus article by Tom Brown