Aramco has the lowest production costs for oil projects in the world, the company said in its newly released IPO prospectus, adding that partner producers such as Russia, Venezuela, and Nigeria had much higher production costs.
The Saudi state company said its after-tax breakeven costs for producing fields were below $10 per barrel, compared with just over $20 per barrel for the UAE, more than $40 per barrel for Russia, and almost $50 per barrel for Nigeria.
Low production costs are one of the main reasons Aramco is considered an attractive investment opportunity for energy investors, along with its massive reserves.
However, there have been several factors that may discourage international investors from betting on the Saudi giant, including the intensifying climate change fight that many worry will affect oil demand negatively as well as the risk of outages after the September attacks on Saudi oil infrastructure that took off the market some 5.7 million bpd in production capacity.
Aramco released its IPO prospectus earlier this week but the 658-page document did not address some important questions such as the exact day of the float, the number of stock to be offered—though it said it will constitute 0.5 percent of Aramco’s total shares—and the price per share.
There is also the issue with supervolatile oil prices that have some wondering how close Riyadh could get to its desired $2-trillion valuation for the company. Now, some analysts are also warning investors to consider the overwhelming influence of the Saudi royal family over the business of Aramco.
“The biggest issue with Aramco is that everything about this company is controlled by the Saudi royal family — shareholder opinions, your board votes, none of that makes any difference,” Pavel Molchanov from Raymond James told CNBC.
“There’s a lot to think about when buying Aramco,” State Street senior global multi-asset strategist Daniel Gerard said, adding the focus should be on “how much political influence would there be over the investment decisions.”
By Irina Slav for Oilprice.com