Aramco IPO Value May Be Much Lower Than Expected

While most international analysts have already said that the value of Saudi Aramco in next year’s IPO would not be close to the Saudi target and claim of US$2 trillion, an environmental campaign group said on Sunday that the value of the Saudi state oil giant could be greatly reduced due to climate policies that are set to fight global warming.

According to a report by Oil Change International, most analyses—valuing Aramco at between US$1 trillion and US$1.5 trillion—fail to acknowledge the impact that climate change policies could have on the valuation of the Saudi firm.

Compared to a base-case estimate of around US$1.5 trillion, Aramco’s value could be 25 percent to 40 percent lower in the safer-climate scenarios of the International Energy Agency (IEA), the report says. In the case of oil prices remaining at a constant US$50 in real terms, the valuation of the Saudi firm could turn out to be less than US$700 billion, which is 55 percent below the base case, according to Oil Change International.

Earlier this year, most fund managers were evaluating Aramco at below US$1.5 trillion. That was just before Saudi Arabia cut the tax rate on Aramco to 50 percent from 85 percent, which caused some analysts, including Rystad Energy, to raise their valuation of the Saudi company’s upstream portfolio.

According to Oil Change International’s report, if Aramco’s IPO realizes a valuation of above US$1 trillion, the company’s investors “could face significant risk from climate policy.” On the other hand, if the valuation is lower, this could raise a debate over whether international oil companies (IOCs) are overvalued.

“If IOCs continue to add new oil and gas, Aramco’s reserves stand to push the world beyond climate limits: after carbon budgets are exhausted, there will still be strong economic incentives to extract them due to their low cost,” said the report.

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“New York and London have been competing hard to get the Aramco listing, but I don’t think they have been paying enough attention to how much it would increase oil price risk and climate risk for investors,” Greg Muttitt of Oil Change told the Financial Times.  

Even though Saudi Arabia’s advisors are said to be favoring London over New York for the foreign venue to list Aramco shares, Saudi Crown Prince Mohammad bin Salman and the Saudi government are said to be more inclined to favor New York for the world’s largest IPO next year.

By Tsvetana Paraskova for Oilprice.com

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