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Aramco selling more assets and facing serious OPEC production competition

Saudi state-controlled giant Aramco is looking to monetize assets as its oil revenues and profits have drastically fallen over the past year. It faces more problems as OPEC producers ramp up their production

Saudi Aramco is preparing a financing package of up to $10 billion Interest in more Aramco shares could be weaker than it was for the first IPO, Under the OPEC+ supply accord, the kingdom was forced to keep output below 9 million bpd

Saudi state-controlled giant Aramco is looking to monetize assets as its oil revenues and profits have drastically fallen over the past year, due to the crash in global oil demand and prices, and the OPEC+ production cut pact aimed at propping up oil prices.

Saudi Aramco is preparing a financing package of up to $10 billion that it could offer to buyers of its pipeline business unit, three sources told Reuters.

In addition to banks, international investors including BlackRock, KKR, and Brookfield Asset Management, which could invest in the pipeline business, are in talks with lenders on possible financing for the same amount, said the sources.

The planned pipeline sale would be similar to infrastructure deals signed over the last two years by Abu Dhabi’s national oil company ADNOC, which raised $20.7-bn in a deal with six international companies for the acquisition of a 49% stake in ADNOC gas pipeline assets.

Aramco, the world’s biggest oil company, completed the largest initial public offering yet in late 2019, raising $25.6 bn. It later sold more shares, taking the total to $29.4 bn. The Saudi government still owns around 98% of the company, which has a market value of $1.9 trillion, second only to Apple Inc.

Saudi Aramco’s profits plummeted last year, but it stuck to a promised $75 bn annual dividend, most of which goes to the government.

Saudi Arabia’s Crown Prince Mohammed bin Salman, the kingdom’s de facto ruler, said last month Aramco will sell more shares in the coming years to bolster the Public Investment Fund’s (PIF’s) coffers boost to $1.1 trin by 2025 from around $400 bn today.

“There are going to be IPOs by Aramco in the following years,” Bloomberg quoted the crown prince as saying at the Future Investment Initiative conference in Saudi Arabia’s capital Riyadh. 

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The value of Aramco’s brand

Saudi state oil giant Aramco remained the second most valuable brand in the oil and gas industry last year, with a value of $35.7 bn, according to Brand Finance. This compares with $46.77 bn a year earlier, Argaam reported.

The list of the most valuable oil and gas brands last year was topped by Anglo-Dutch supermajor Shell, with a value of $42.16 bn. After Aramco came two Chinese giants, PetroChina and Sinopec, valued at $31.42 bn and $26.40 bn, respectively. 

With the rise in popularity of Environmental, Social, and Corporate Governance (ESG) investing, interest in more Aramco shares could be weaker than it was for the first IPO, despite the company’s firm commitment to dividend payments, whatever its actual financial performance.

Aramco’s capital expenditures and OPEC competition

Aramco began 2020 with a chunky capital expenditure budget of between $35 billion and $40 billion, but this figure was progressively lowered throughout the year as the demand shock caused by the global pandemic forced the kingdom into severe production cuts along with OPEC, Russia, and other allies.

By the third quarter of 2020, Aramco’s capex had been halved to $20 bn.  

Aramco’s tighter spending has resulted in several international contractor companies working on pipeline and offshore projects not getting paid for several months, three sources told S&P Global Platts. 

Saudi Aramco may however be forced to play catch-up in 2021 as rival state-controlled oil companies closely aligned to OPEC policy in the Middle East race to add new production capacity and win back market share despite deep pandemic-induced output cuts.

ADNOC, which has about a third of Aramco’s production capability, approved in November a $122 bn capex program through to 2025 as Abu Dhabi pushes to raise capacity by about 25% to 5 million b/d. 

Kuwait will also still spend more per barrel on projects than Aramco.

Under the OPEC+ supply accord, the kingdom was forced to keep output below 9 million bpd for much of the year, leaving it with some 3 million bpd of unused spare capacity.

Saudi Arabia’s quota under the deal has eased to 9.119 million bpd for the first quarter of 2021, but lingering concern over the uncertain global economic outlook prompted energy minister Prince Abdulaziz bin Salman to announce Jan. 5 that the kingdom would unilaterally cut an additional 1 million bpd below that for February and March.