In what could be a power struggle between Saudi Aramco and the Saudi government, the Kingdom has altered the concession contract with the oil giant to 40 years with an option for renewal from a previous deal for oil and gas rights ‘in perpetuity’, the Financial Times reported on Monday, quoting three people briefed on the issue.
The changes were reportedly made as Saudi Arabia was making procedural, tax, and governance changes in preparation of the initial public offering (IPO) of Saudi Aramco, which now, it seems, is indefinitely postponed, or even called off.
Last Wednesday, reports emerged that Saudi Arabia had called off its highly anticipated, US$100-billion IPO, Reuters sources said, with even plans to list the state-run oil company on its domestic bourse, Tadawul, being scrapped. The listing was expected to be the world’s largest IPO, and the Saudis pegged a large part of the Vision 2030 economic agenda on proceeds from the IPO.
Saudi Arabia immediately denied the reports that the listing was canceled, with Energy Minister Khalid al-Falih saying in a statement carried by the Saudi Press Agency:
“The Government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum. This timing will depend on multiple factors, including favorable market conditions, and a downstream acquisition which the Company will pursue in the next few months, as directed by its Board of Directors.”
In that same statement, al-Falih said that in order to prepare for Aramco’s listing, the Saudi government had taken several steps in that direction, including “reissuing a long-term exclusive concession,” without specifying details.
According to FT’s sources, cutting the concession period from ‘forever’ to 40 years—but still well over the typical 20-year concession contracts that international oil companies have with other countries—is now pointless with the IPO stalled, and has only served to exert control over the oil giant that has tried to keep its ‘in perpetuity’ concession.
The government has sought to have a shorter concession period, closer to the 20-year concessions that Big Oil have, but this would have meant changes in what Aramco could count as oil reserves, and would have had impact on its valuation, according to FT.
By Tsvetana Paraskova for Oilprice.com