Saudi Aramco is quite possibly the most valuable company in the world, but no one knows how much it is truly worth. While Crown Prince Mohammed bin Salman mentioned a possible $2 trillion valuation, other projections have ranged from $500 million to $1.5 trillion. A large portion of an Aramco valuation lies in the value of Saudi Arabia’s oil reserves. Saudi Arabia contends that it has 260 billion barrels of oil, however, third-party audits have never been released. Saudis Arabia has carefully guarded details about the size and health of its reserves and considers it a matter of national security.
Aramco’s valuation will depend, in large part, on the price of oil at the time of the IPO and on the market’s perception of the company and the kingdom. Oil prices have risen in recent months to three-year highs but are still far below the prices seen five or 10 years ago. Aramco’s vast network of midstream and downstream operations will factor into the valuation, though perhaps not as much as they should, simply because of the emphasis the marketplaces on the size and health of Saudi Arabia’s reserves and the old perception that Aramco is an upstream company.
It has not yet been announced on which market or markets Aramco intends to list. Saudi Arabia has made it clear that Aramco will be listed on its domestic stock exchange, called Tadawul, which is an objectively small market with only 171 listed companies. Aramco would increase its prestige and possibly bring investment to other Saudi companies. However, if Aramco offers 5% on Tadawul, it may have trouble attracting enough investors. Moreover, if so much of Aramco is traded on Tadawul a change in oil prices could shake the Saudi economy.
Additional markets under consideration include the New York Stock Exchange, the London Stock Exchange and the Hong Kong exchange. The NYSE would be the best placement for a company of Aramco’s size. However, the NYSE has the most stringent disclosure regulations. Aramco would have to disclose a great deal of information about the size and health of its oil reserves in order to list on the NYSE, information that the kingdom would prefer not to reveal. There have also been reports that Aramco officials are concerned about listing on the New York exchange because of the increased potential for Aramco to be named in climate lawsuits. Some observers and journalists have also pointed to possible Saudi fears that Aramco assets could be the target of terrorism lawsuits. This is unlikely for a variety of reasons, and both Saudi Arabia and Aramco already own significant assets in the United States.
Disclosure regulations are less strict on the London exchange, and regulators in London have even offered to relax some of the rules for Aramco should the company choose to list on the LSE. The Hong Kong exchange presents another possibility, which would not expose Aramco to such strict disclosure relations. It is also seen as desirable because Aramco’s core clientele today are Asian. Aramco has long-term contracts with Chinese refineries to purchase Saudi oil and has developed deep ties with Chinese institutions in recent years. However, the Hong Kong exchange might not be large enough for the company. It is possible Aramco might choose to list on multiple international markets and Tadawul, or it might list a small portion of the company on Tadawul first and pursue international listings after the domestic listing. Anchor investments from certain Asian investors might also sway Aramco toward listing on the Hong Kong exchange.
Aramco is not the next ExxonMobil or BP. When an IPO happens, Aramco will show higher profits than international oil companies and its revenue generation will be balanced differently between upstream and downstream than other firms. When Aramco does eventually go public, it will also have an easier transition because unlike other national oil companies, it has always exerted and been afforded its own independence. For investors, a publicly traded Aramco will be a whole new creature.