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Value of Saudi Aramco significantly lowered by analysts

Oil tanksers seen at the Al-Basra Oil Terminal in Iraq [Samuel W. Shavers/Wikipedia]
Oil tankers seen at the Al-Basra Oil Terminal in Iraq, 16 May 2017 [Samuel W. Shavers/Wikipedia]

Saudi state owned oil company, Aramco, has been valued significantly lower than the $2 trillion estimation as the country readies itself for launch next year in the global stock market.

Reuters Breakingviews, which provides financial insight, estimates that "if the oil price stays where it is now, at around $50 a barrel, Aramco would be worth less than $1.1 trillion – even if it were pumping oil at its full capacity of around 12.5 million barrels per day".

Funds raised from the sale of what is expected to be the biggest public offering in history is key to Saudi's modernisation project envisaged in the 2030 Vision. However, Reuters Breakingviews has calculated that "it would require an average oil price of just above $80 per barrel over the next decade to nudge the market capitalisation close to $2 trillion" mark.

Read: Saudi's sale of Aramco helps develop domestic weapons industry

It is reported that the kingdom is undergoing frantic exercise to make the company more attractive to international investors before its international stock market flotation.

Aswath Damodaran, a professor at New York University spoke to the Financial Times about the challenge facing the Saudi royals in making Aramco more lucrative: "Aramco is part oil and gas company, part government welfare fund, part sovereign investment fund," he explained, "at the same time it's a symbol of Saudi Arabia to the world. It's all of these things. How much can you truly separate these functions?"

In order to make Aramco more appealing it will end its role as financer of the kingdom's infrastructure and welfare projects. "We have constructed universities, stadiums, we worked in [fixing] Jeddah's sewage [system]. This is not anymore," Amin Nasser, chief executive of Aramco, told the FT in April.

Separating Aramco from the role it has carried out since its inception will be harder than it seems. "It's not clear to me that you can privatise Aramco and treat it like an Exxon," Damodaran said.

Aramco is not a company, it is the Saudi Arabian budget to run the country.

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