Saudi Aramco is preparing to give investors unprecedented access to its accounts, lifting the lid on the world’s biggest oil producer ahead of a planned initial public offering in 2018.
Saudi Arabia’s state-controlled oil company is busy overhauling its accounts so as to publish figures for its 2017 financial year in an industry-friendly format, said four people close to the company. It is also planning to show investors backdated accounts in this format for its 2015 and 2016 financial years, which could be released as soon as 2017.
The kingdom’s influential deputy crown prince Mohammed bin Salman said in April that the planned listing of 5 per cent of Saudi Aramco could value the company at more than $2tn. This means it could become the world’s largest listed company: Apple, currently in top spot, has a market capitalisation of more than $600bn.
The IPO is the cornerstone of prince Mohammed’s plan to reduce Saudi Arabia’s reliance on oil, by using proceeds from the flotation to diversify the country’s economy. This has become a priority after crude prices more than halved to around $50 a barrel in the past two years.
Although it issues production figures in its annual report — Saudi Aramco pumped 10.2m barrels a day last year — the company has never issued financial statements.
Analysts estimate that Saudi Aramco generated higher revenues than Apple and Microsoft combined in 2014, before the worst of the oil crash that began in the middle of that year.
But the company’s performance has long been deemed a black box by the energy industry and its advisers, due to its entanglement with the Saudi state.
As well as financing the majority of government spending, Saudi Aramco is a big domestic employer, constructing schools, hospitals and sport stadiums.
This makes disclosure of the company’s core energy activities a complex task. Saudi Aramco is said to be trying to organise its reporting along the lines of multinational oil companies such as BP and ExxonMobil, which disclose revenue and earnings generated from crude production, refining and petrochemicals.
“Investors need transparency about the company’s financial statements,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.
Tom Nelson, a fund manager who is head of commodities and resources at Investec Asset Management, said: “The market will be cautious unless the information provided is in line with international [financial] reporting standards. There is a risk that the headline excitement will give way to an opaque and frustrating reality.”
Saudi Aramco declined to comment on its IPO plans or accusations that the company is opaque. “Saudi Aramco does not comment on rumour or speculation,” said a company spokesman.
Since the start of the year Saudi officials have said an IPO of Saudi Aramco would improve transparency at the company.
The exact format of Saudi Aramco’s accounts could still change but people close to the company said its IPO team, which is staffed by Saudi Aramco executives and overseas consultants, has commissioned current and historical profit and loss statements for each operating division.
Crucial to valuing Saudi Aramco will be its dividend policy for shareholders, and how much it pays in taxes and royalties to the state.
Another factor affecting the valuation is that Saudi Aramco’s balance sheet is not expected to feature the oil reserves from which it pumps crude, according to Saudi officials.
Khalid al-Falih, the Saudi energy minister, said in June that the state would retain control over the country’s crude output targets and production capacity, suggesting Saudi Aramco would not have the decisive say on these matters.
The company is considering several overseas exchanges including Tokyo, Hong Kong, New York and London for a dual listing shared with Riyadh.
People close to the company said an Asian bourse is the most likely venue, reflecting how oil demand in the region is still growing fast, and has less stringent disclosure requirements.
London is in the running but New York has fallen out of favour, added these people, partly as a result of a push by US lawmakers to allow families of victims of the September 11 terror attacks to sue the Saudi Arabian government.
JPMorgan and former star Citigroup banker Michael Klein are advising on the IPO.
Riyadh’s attempt to reduce its reliance on oil is spurring the flotation particularly as lower oil prices have revealed the country’s economic fragility. As part of a drive to plug an estimated budget shortfall of $100bn, the kingdom last week announced cuts to public sector bonuses and benefits.
Domestic financial pressures are thought to be behind the Saudi decision last week to back a production cut by Opec, the oil producers’ cartel, with Riyadh pursuing a higher price after two years of focusing on pumping more crude to win a bigger share of the market.
The timing of Saudi Aramco’s IPO could still slip from 2018, given the challenges in preparing for the listing.
Investments are being directed towards its core business of producing crude and refining it before the IPO, said one person familiar with Saudi Aramco’s strategy. “Making sure the company looks good to investors is dictating everything,” added this person.
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