The ultimate IPO: Aramco is too big to value

Saudi Arabian Oil Co, or Saudi Aramco, is in a league of its own, by any measure. The world’s largest oil producer, Aramco pumps 10mn-plus barrels daily (expandable up to 12mn bpd on short notice), more than the domestic output of every US oil company combined. It has 261bn barrels of proven reserves, according to its 2014 annual report. This compares with less than 14bn barrels of liquid reserves of global ultra-major ExxonMobil of the US.The financial world, understandably, greeted with shock the mere suggestion that the Saudi state-owned oil behemoth might go public.Saudi Deputy Crown Prince Mohamed bin Salman said in an interview with The Economist last week that the kingdom was considering an Aramco IPO as part of a broader package of economic reforms. The next day the company confirmed the initial public offering plan.What, then, is Aramco’s worth? “Trillions of dollars,” according to The Economist. If that’s not enough, take your pick. The company could be worth anything from $1tn to upwards of $10tn, which would make it the most valuable company in the world, according to research firm Capital Economics. Mohamed al-Sabban, a former senior adviser to the Saudi oil ministry, who is now an independent oil analyst, says Aramco’s value could be more than $10tn. Based simply on its oil reserves and using a conservative valuation of roughly $10 per barrel, Aramco could be worth more than $2.5tn compared with an estimated $650bn-plus (based on 2016 Saudi budget numbers) national economy. Additionally, with its enormous reserves, Aramco could be worth up to 20 times as much as Exxon, the largest non-state-controlled listed oil company with a market valuation of $317bn. But investors rarely value state-owned oil companies as dispassionately as the numbers suggest. Should Aramco go public, it might actually fetch as little as $100bn, based on valuations applied to similar state-owned groups, according to a Bloomberg report.How would Saudi Arabia go about listing the oil giant?The potential sale, with no specific timeline yet, could include listing at least part of its exploration and production assets (upstream), the company’s chairman said on Monday, countering speculation that any IPO would focus solely on its refining and petrochemical arms (downstream). “We are considering a listing at the top. So a listing of the main company, and obviously the main company will include upstream,” said Khalid al-Falih. He also said any offer would be primarily on the domestic stock exchange, but did not rule out international listings. The Saudi move also comes as oil prices are languishing at their lowest in 12 years, which could heavily weigh on Aramco’s valuation should it go public.Despite all the ifs and buts, the Saudi government’s potential move to sell off its crown jewel is part of broader economic reforms being planned to diversify the economy away from the over-dependence on oil revenue. But until Saudi Arabia comes out with specific plans for the sale, investors cannot help scratching their head to deconstruct the gargantuan conundrum of Aramco IPO to comprehensible levels.