Saudi Aramco 2030: Post IPO challenges

312 Pages·2018·6.816 MB·English

by  Mohamed A. Ramady (auth.)

Mohamed A. Ramady
Saudi
Aramco 2030
Post IPO challenges
Saudi Aramco 2030
Mohamed A. Ramady
Saudi Aramco 2030
Post IPO challenges
Mohamed A. Ramady
London, United Kingdom
ISBN 978-3-319-67749-1 ISBN 978-3-319-67750-7 (eBook)
DOI 10.1007/978-3-319-67750-7
Library of Congress Control Number: 2017954578
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Dedicated to my son, Faisal, and all past,
present, and future male and female
“Aramcons” of many nationalities who have
made Saudi Aramco what it is today and
what it aspires to be. May the “burst of
energy,” embodied in the company logo,
be with you.
Acknowledgments
While the book is dedicated to all Aramcons, I would also like to acknowledge the
support and encouragement received from my many former students and friends in
Aramco over the years, which prompted me to write the book as a thank you.
Other non-Aramcon friends are gratefully acknowledged, including Wael Mahdi,
Dr. Ziad Al Sudairy, Dr. Abdelrahman Al Zamil, Dr. Abdelaziz Al Fahad, Dr. Sadad
Al Husseini, Prof. Bernard Haykel, Dr. Robert Walker, Mazyad Al Khaldi, Dr. Anas
Al Hajji, Dr. Faisal Mirza, Llewellyn Lewis and Abdelsamad Al Awadhi for their
moral support; and my eldest son, Ali, who opened my eyes to his world of seismic
engineering, 4-D imaging, and vibroseis trucks.
Needless to say, the author takes full responsibility for any errors, shortcomings,
and omissions, and opinions expressed in the book are entirely those of the author
without attribution to any Aramcons or those acknowledged.
Finally, a special word of gratitude goes to Junaid Akhtar for his tireless typing
work and dedication.
Dr. Mohamed A. Ramady
2017
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Contents
1 From Infancy to the Global Energy Warehouse:
Looking into the Past Is a Guide for the Future . . . . . . . . . . . . . . . . . . 1
How It All Started: The Pioneering 1930s . . . . . . . . . . . . . . . . . . . . . . . . . 1
From the “Seven Sisters” to Saudi Hands: 1950s–1980s . . . . . . . . . . . . . . 7
Leading Aramco: Different Managers, Different Challenges,
and Different Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Increasing Saudi Workforce Participation. . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Rise and Fall of Petromin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Aramco in the Limelight: Rising to the New Challenges . . . . . . . . . . . . . . 22
2 Not Your Average National Oil Company . . . . . . . . . . . . . . . . . . . . . . . . 25
Ensuring Long-Term Survival: Aramco’s Upstream Might . . . . . . . . . . . . 25
Adding Value: The Emerging Refinery Empire . . . . . . . . . . . . . . . . . . . . . 28
Domestic Refineries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
International Refineries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Crude or Refined Product Exporter? Economic Diversification
and Vulnerabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Petrochemicals: The New Frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Increased Integration and a Changed Productive Mix: SADARA
the Crown Jewel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Challenges and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
The Glittering Prize: The Far East Connections . . . . . . . . . . . . . . . . . . . . . 49
Something New Under the Sun: Saudi Arabia’s Renewable
Energy Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Technology and Research: A Must for Long-Term Survival . . . . . . . . . . . 53
The Saudi Aramco Petrochemical Sector and the Planned IPO . . . . . . . . . 58
3 Aramco’s New 2030 Vision and Mission Mandate:
Managing Expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
The Pillars of Saudi Energy Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Saudi Arabia Under New Management: Key Players and Institutions . . . . 64
New Ministry: New Tasks for Aramco . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
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x Contents
Saudi Aramco and Vision 2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Weaknesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Threats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Poverty Amid Plenty: Tackling the Subsidies Program . . . . . . . . . . . . . . . 76
Fixing the Imbalance: The Energy Efficiency Program . . . . . . . . . . . . . . . 79
IKTVA: Rebooting the Saudi Energy Sector . . . . . . . . . . . . . . . . . . . . . . . 82
Saudi Arabia’s Master Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Saudi Aramco’s Corporate Social Responsibility
and the Saudi Knowledge-Based Society . . . . . . . . . . . . . . . . . . . . . . . . . . 90
4 From NOCs to Privatized Oil Companies: A Comparative
Country Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Why Privatization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
State Participation in the National Resource Sector
and NOC Privatization Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
NOC Country Case Studies: Has Privatization Met Expectations? . . . . . . 99
Russia’s Rosneft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Norway’s Statoil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Brazil’s Petrobras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
China’s Sinopec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
The Partly Privatized NOCs: How Do They Compare? . . . . . . . . . . . . . . . 158
5 The Aramco IPO: Governance, Listing, Options,
and Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Why the Need for an IPO? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Issues and Obstacles to Overcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Aramco’s Key Asset: Its People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Meeting Effective Governance and Oversight . . . . . . . . . . . . . . . . . . . . . . 183
Reserves: Separating Fact from Fiction . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Where to List? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
IPO Options and Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
What Value for Aramco? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
The Downstream Sector Could Add to the IPO Valuation . . . . . . . . . . . . . 238
Launching the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Aramco and Post-IPO Realities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
OPEC: One Foot In, One Foot Out? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
6 Conclusion and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
About the Author
Mohamed A. Ramady is a former Visiting Associate Professor in the Faculty of

Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran,
Saudi Arabia. He obtained both his BA and his PhD from Leicester University, UK,
and a postgraduate degree from the University of Glasgow. He is a fellow of the
Chartered Institute of Bankers (UK). He specializes on regional economics, energy,
and the Saudi economy, as well as on money and banking. Among his publications
are The Saudi Arabian Economy: Policies, Achievements, and Challenges (Springer,
New York, 2010); the GCC Economies: Stepping Up to Future Challenges (Springer,
2012); Political, Economic and Financial Country Risk: Analysis of the Gulf
Cooperation Council (Springer, 2014); OPEC in a Shale Oil World: Where to Next?
(Springer, 2016) with Wael Mahdi; and The Political Economy of WASTA: Use and
Abuse of Social Capital Networking (Springer, 2016). Prior to his academic career,
Dr. Ramady has over 25 years of senior level positions in banking, finance, and
investment in the Middle East and Europe with Citibank, Chase Manhattan, First
City Texas Bancorp, and Qatar National Bank. He also served as senior advisor to
the Chairman of Qatar International Islamic Bank.
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Abbreviations
ADNOC Abu Dhabi National Oil Company
AOC Aramco Overseas Company
Aramco The Saudi Arabian Oil Company or Saudi Aramco unless other-
wise denoted to mean the predecessor “Aramco” company
ARLANXEO Aramco Lanxess Company
ASEAN Association of Southeast Asian Nations
ATC Saudi Aramco Products Trading Company
bcf/d Billion cubic feet/day
BN Billion
BNDES Brazilian Development Bank
BOE Barrel of oil equivalent
bp Basis point
Bpd Barrels per day
CASOC California-Arabian Standard Oil Company
CCP Chinese Communist Party
CCS Carbon Capture and Storage
CDS Credit default swap
CEO Chief Executive Officer
COD Central Organization Department
CSLF Carbon Sequestration Leadership Forum
CSR Corporate social responsibility
DCF Discounted cash flow
DTVC Dhahran Techno Valley Company
ECA Export Credit Agency
EOR Enhanced oil recovery
EU European Union
EVA Economic value added
EVP Executive Vice President
EXPEC Exploration and Petroleum Engineering Center
FCA Financial Conduct Authority
GAPP Generally accepted accounting principles
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