(Reuters Breakingviews) - Saudi Aramco’s relative strength as the world’s bigges...
FILE PHOTO: An employee looks on at Saudi Aramco oil facility in Abqaiq, Saudi Arabia October 12, 2019. REUTERS/Maxim Shemetov/File Photo
LONDON - Saudi Aramco’s relative strength as the world’s biggest oil producer is an absolute distraction when it comes to establishing its worth. The Saudi oil giant’s initial public offering prospectus, published on Saturday, outlines how it is both much more profitable than sector peers like Exxon Mobil and Royal Dutch Shell, and more likely than them to remain afloat when the global oil industry hits the iceberg of peak demand.
The 658-page doorstop that Aramco presented to would-be investors lacks some short-term details like the size and price of its impending stock-market listing, but gives some eyecatching detail on the longer term. It assumes a 0.8% compound annual growth rate for global crude oil demand between 2018 and 2030, compared to the 0.5% for 2017 to 2030 cited in Aramco’s first international bond prospectus in April.
Aramco’s contention is that it can weather those scenarios. It says it can muster a 10% rate of return with oil prices well below $20 a barrel, compared with more than $60 today. That explains its 41% return on average capital employed in 2018, compared to 8% for its peers on average.
The catch is oil prices. If demand really did start to tail off in the next decade, those might well fall. Politicians are not yet doing what’s needed to keep global warming below acceptable levels, but they may yet step up their efforts, faced with increasingly tangible signs of climate change. Even as the best placed of the oil producers, Aramco’s $75 billion annual dividend might then be harder to guarantee.
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