State- owned Saudi energy company, Aramco, is considering shifting its initial public offering date after a drone attack shaved more than half of the kingdom’s oil output.
Aramco, the world most profitable company is preparing for an IPO, dubbed the world’s largest initial public offering, in which it had hoped to first sell a sliver of itself to investors on the local Saudi exchange and then list shares internationally, the listing plans have long been dogged by questions overvaluation.
The weekend attacks present Aramco with arguably its biggest hurdle so far on the road to going public.
However, the company is expected to move forward with presentations to analysts and meetings with bankers as planned, but Saudi energy officials and Aramco executives are debating a rescheduling of the IPO until after the company fully restores its production to normal levels.
Officials had hoped to pull off its Saudi listing sometime in November. Officials say that they want to wait to get a full assessment of the damage from the attack before pushing any listing back.
Rehan Akbar, Moody’s vice president, said the attacks on Saudi Aramco’s oil facilities on Saturday are “credit negative and the disruption is significant,” said
Akbar added that the rating agency does not expect the attacks “to leave a long- lasting impact on Saudi Aramco’s financial profile given its robust balance sheet and strong liquidity buffers.”
“This event, however, highlights the credit linkages the company has to Saudi Arabia both in terms of geographic concentration, and more importantly exposure to geopolitical risk,” Akbar said on Monday
The attack on the heartland of Saudi Arabia’s oil industry, including damage to the world’s biggest petroleum-processing facility has driven oil prices to their highest level in nearly four months. The attack also shut 5percent of world production has seen oil prices ballooned as high as 19percent, the highest intraday surge since the 1991 Gulf War.
The attack on stateowned producer Saudi Aramco’s crude-processing facilities at Abqaiq and Khurais cut output by 5.7 million barrels per day with accusing fingers pointed at Iran, a claim Tehran has denied.
The two countries, Saudi Arabia and Iran, have been enemies for decades and are fighting a number of proxy wars, also tensions between United States and Iran are already running high because of a longrunning dispute between the two nations over Iran’s nuclear program that led the United States to impose sweeping sanctions
In a swift reaction to the attack, Donald Trump, U.S. President, has authorized the use of the U. S. emergency oil stockpile to ensure stable supplies while also threatening that the U. S was “locked and loaded” for a potential response to the attack on Saudi Arabia’s oil facilities.
The implication on total crude oil supply
According to International Energy Agency (IEA), the Organization of the Petroleum Exporting Countries ( OPEC) global supply cushion was just over 3.21 million barrels per day ( bpd) before the attack, out of this; Saudi Arabia had 2.27 million bpd of that capacity, leaving around 940,000 bpd of spare capacity, mostly held by Kuwait and the United Arab Emirates.
U.S. shale producers to the rescue?
U. S. shale producers have added millions of barrels to global crude supply in recent years; however, this does not mean they can fill the gap for lost barrels from weekend attacks on Saudi Aramco facilities.
The spike in oil prices offers relief at a critical time for U.S. shale producers, which have seen investors flee after the sector largely failed to generate shareholder returns while rapidly growing output.
Shale producers generally could use the expected jump in crude prices to add hedges, or contracts that lock in future prices, allowing them to capture some of the expected price increase. Also, if the Saudi outage is prolonged and oil prices rally significantly, then shale producers will raise output.
Where does Nigeria stand in this mix
Sadly, the increase in oil prices does not translate to increase in revenue as the government would have to spend more on subsidy. The country still depends largely on fuel refined abroad to meet the local demand. According National Bureau of Statistics, the Federal Government spending on the importation of Premium Motor Spirit, also known as petrol, soared by nearly 50 percent to N2.95tn in 2018, while the country spent N1.97tn on PMS imports in 2017, N1.63tn in 2016 and N1.14tn in 2015.
