Aramco's USD 2 Trillion IPO - ready, steady.........shale?

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Apparently, the Saudi Aramco float is all but ready to go for the second half of the year, despite key float venues and bankers/brokers still jockeying for headline roles.

Indications are that 5% of the register could be sold by way of float for USD 100 billion, implying a USD 2 trillion valuation for the lot.

That's serious freight. Needless to say if it happens, it will be the biggest float ever. It would eclipse the $25 billion Alibaba IPO by many orders of magnitude and would represent a handy kicker to help diversify the Kingdom's petro-economy.

More to the point, the risk of not getting it away would be far too much to contemplate for the stable of bankers and would-be global coordinators vying for a role (and the brag-sheet). 

Brokers will say it is not a cyclical-high dump because the Kingdom will keep (at least for the moment) the other 95% of the register, meaning serious skin remains in the game.

On the face of it and with the oil price recently around the USD 70/barrel (the highest in 3 years), you can see how this might be sold into the market.

So, ready, steady.......but wait, what's happening with US shale oil? 

The accepted US shale oil production break-even price using West Texas Intermediate (WTI) as the benchmark, is now somewhere in the vicinity of USD 50/barrel. As the WTI benchmark price is well above this level, conditions are again favourable to turn the shale oil tap on, and the International Energy Agency (IEA) is warning of 'explosive growth' in US oil production. WTI futures indicate further weakness even in light of production cuts and stockpiles.

Not so good when you're trying to float the world's biggest oil company.

Personally, I'd like to see more information on US production volumes and where global demand is really headed this year before considering the supply-side effect. But, what will be of interest over the coming months is whether or not the USD 2 trillion value expectation changes as the PR machine kicks into gear. 

Mike


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