Arab News, Saturday, Jan 12, 2019 | Jumada Al Awwal 6, 1440
Saudi Aramco oil reserve upgrade seen boosting bonds, IPO
flurry of announcements from Saudi Arabia’s energy authorities was seen by
experts as a triple boost for the Kingdom at a crucial time for the global oil
Khalid Al-Falih, the energy minister and chairman of Saudi Aramco, the world’s
biggest oil company, on Wednesday revealed that the Kingdom’s oil and gas
reserves had been valued by independent experts as significantly higher than
previous official estimates.
Al-Falih also updated global markets on plans for an initial public offering
(IPO) of Aramco shares, scheduled for 2021, assuming markets conditions allow,
and nailed down the schedule for what could be a record-breaking issuance of
bonds. The international debt offering, set to be Aramco’s first, will now take
place in the second quarter of this year, he said.
The upward estimate of reserves was the most eye-catching of the announcements.
Saudi Arabia is officially ranked second in the world for reserves, after
troubled Venezuela, but the Kingdom’s own estimate has stayed constant for some
The latest assessment comes from DeGolyer & MacNaughton, a respected firm of oil
analysts based in Dallas, Texas. The firm concluded that, including reserves in
the “partitioned zone” between Saudi Arabia and Kuwait, the Kingdom’s total oil
reserves would have amounted to 268.5 billion barrels at the end of 2017, after
which the DeGolyer study was made.
Natural gas reserves were also upgraded in the DeGolyer survey, showing 325.1
trillion standard cubic feet (scf) of gas compared to a previous estimate of
307.91 trillion scf.
Jean-Francois Seznec, the US-based academic and specialist in Middle East
business and finance, said: “The audit by a reputed independent firm certainly
adds to the credibility of the IPO, even though it may not happen in the next
“I was especially intrigued by the increase in natural gas reserves … I always
assumed that the Kingdom was short of gas; I guess I will have to change my
tune,” he added.
Other analysts linked the announcement on reserves to longer-term financial
planning by Aramco. Ellen Wald, president of Transversal Consulting and author
of “Saudi Inc,” a business history of the
Kingdom, said the announcements show that “both Aramco and Saudi Arabia are not
hesitant to open up their books if there is a good reason. The upward revision
is not large enough to be particularly
significant, but the openness is, especially in the context of issuing bonds or
a future IPO.”
Jim Krane, fellow in energy studies at Rice University’s Baker Institute in
Houston, Texas, said: “There’s been a cottage industry in speculation about the
‘true’ size of Saudi oil reserves. These figures ought to put to rest
speculation about the true size of Saudi reserves being anything other than what
Aramco says they are.”
The bond issue is an important step for Aramco. Although it has issued bonds in
Saudi riyals before, this will be the first time it has tapped the international
markets for debt. Al-Falih said the issue was “probably” going to be in US
International bond issues oblige the issuer to reveal detailed financial
information about the company, in what could become a trial run for the higher
levels of financial disclosure required for an IPO by Aramco.
Al-Falih told Bloomberg that the funding program “will be sustained over time as
Saudi Aramco grows and undertakes its capital program … We believe that having
bonds and commercial paper as one of its sources of capital is prudent and
The funds to be raised this year are likely to be earmarked for the acquisition
of Sabic, the industrial conglomerate listed on the Saudi stock exchange, in
which Aramco has said it is considering purchasing a stake.
That acquisition could cost as much as $70 billion. Aramco has not decided on
how to fund that outlay but a big bond issue could be a key part of the process.
Al-Falih did not specify the exact size of the planned Aramco issue but said:
“It is not gong to be anywhere near the number that has been rumored.”
Further out, the reserves upgrade could also affect the valuation of Aramco in
any IPO. Al-Falih restated the official intention to proceed with an
international offering of shares by 2021. The flotation was originally slated
Krane said: “I’m not sure that certifying Aramco’s reserves is enough to
resurrect the IPO any time soon. There are good reasons why Saudi policymakers
called off the IPO, and worries over the size of Saudi reserves were not high on
“But providing this transparent audit gives us an important piece of the puzzle.
Investors now have more certainty that Saudi reserves are real. Even if the IPO
winds up selling off part of Aramco’s downstream business — something not
directly related to producing crude oil — confidence over reserves will build
Meanwhile, a Reuters report published Thursday suggested strong global appetite
for Saudi bonds more generally.
The Kingdom, seeking to raise $7.5 billion in bonds, attracted demand that
topped $27 billion for the dual-tranche paper maturing in 2029 and 2050,
according to a document seen by the news agency.