Saudi Arabia set to reveal depth of oil reserves

Posted on November 16, 2016

Saudi Arabia is set to lift the lid on one of the global energy industry’s most closely guarded secrets as it prepares to sell shares in Saudi Aramco: how much crude lies beneath the desert kingdom’s sands.

“This is going to be the most transparent national oil company listing of all time,” Khalid al-Falih, the energy minister of Saudi Arabia, said in an interview with the Financial Times.

Saudi officials have consistently said there are about 260bn barrels of proven reserves at the world’s largest oil exporter since the formerly US-controlled Saudi Aramco was nationalised in the 1980s. But the profiles of oilfields and reserves estimates have remained a source of intrigue among international energy executives and investors who have been unable to verify the government’s figures. Mr Falih said independently audited numbers would soon be disclosed.

“Everything that Saudi Aramco has, that will be shared, that will be verified by independent third parties,” he said, adding this would include financial statements, “reserves … costs [and] profitability indicators”.

Speculation about whether detailed data on the kingdom’s reserves — managed by the state oil company — would be given to investors has intensified since January, when Saudi Arabia announced it was looking at a stock market listing of Saudi Aramco as part of a drive to diversify its oil-dependent economy.

Khalid al-Falih: ‘Saudi Aramco can be multiples of GE if we put our mind to it’ © Bloomberg

If the government data proved accurate, this would be significant as it would mean the kingdom has managed to replace each barrel it has produced with oil from new discoveries or higher estimates of the amount of oil it can recover from existing fields.

For Saudi Arabia’s economic reforms to carry credibility, industry observers say there is an urgent need for greater transparency in how government finances are generated and dispersed. But they have questioned the extent to which the kingdom will do so, particularly in relation to the Saudi Aramco IPO.

Even so, any information is likely to affect oil markets because it will reveal how long one of the biggest crude producers can continue to pump oil. Saudi Arabia’s sovereign bond prospectus last month said the country’s reserves could last for approximately 70 years but stipulated the estimate had not been reviewed by a third party.

Although the kingdom’s reserves are not expected to be part of any sale, and the state will have sovereign right over their management, they will factor into the company’s valuation, which Saudi officials say could be as high as $2tn.

This is crucial information for investors considering a stake in a company that Mr Falih, who is also Saudi Aramco’s chairman, said had the potential to become an industrial conglomerate rivalling General Electric of the US.

“You look at a company like GE that is [in] everything from aerospace to healthcare to lighting to oil and gas. Saudi Aramco can be multiples of GE if we put our mind to it,” he said.

As well as spreading into renewable energy and speciality chemicals, Mr Falih said the company could potentially become “the next big player in global liquefied natural gas”.

The listing could also help propel Saudi Arabia into other sectors, he said, such as robotics and the “internet of things”.

Mr Falih was speaking in Marrakesh where he has been leading Saudi Arabia’s delegation at UN climate change talks on the Paris agreement between nearly 200 countries that was sealed in December.

He said Saudi Arabia was close to finalising a tender for a sharp increase in the amount of renewable power it uses domestically.

The country has long relied on natural gas and oil for its energy but aims to install nearly 10 gigawatts of solar, wind and other types of clean power by 2023, which Mr Falih said would amount to about 10 per cent of peak demand.

Eventually he hopes that as much as 30 per cent of the kingdom’s electricity could come from a mix of renewables and nuclear power, though there are no “imminent” plans to build a nuclear plant.

“We’re in the process of putting one large wind turbine in the kingdom as a demonstration,” he said, adding another tender for a “major wind energy project” would be launched after the first turbine had been tested.

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