Rashid Husain Syed is a journalist, energy analyst and consultant based in Toronto. For almost 25 years, he served as vice-president of a leading Saudi trading and consulting house.
Stakes are high as Saudi Aramco, the massive national oil company of Saudi Arabia, prepares for a partial privatization. Eyes are focused on the amount of money the process could fetch.
The very success of Vision 2030, the plan to take Saudi Arabia into a less oil-dependent future, hinges to a great extent on the Saudi Aramco initial public offering.
Global investment bankers are flocking to Riyadh to get a piece of the work involved in the IPO. Saudi Arabia has already paid out $100-million (U.S.) in fees to investment banks during the first five months of this year, a 30-per-cent increase. The IPO alone should generate roughly $50-million in fees, but the opportunities don't stop there.
How much could Aramco fetch today? Most agree that spinning off parts of the company could generate hundreds of billions of dollars. Saudi Deputy Crown Prince Mohammed bin Salman, the driving force behind the proposed IPO, has estimated that it will be between $2-trillion and $3-trillion. Some projections reach the $10-trillion mark.
Crude reserves are the company's biggest and most-watched asset. The bigger the asset base, the larger the revenue generation. And according to the Organization of Petroleum Exporting Countries cartel, Saudi proven reserves stood at 266 billion barrels in 2015 – the largest proven reserves in the world. By contrast, Exxon Mobil Corp., the largest non-state-controlled oil company, had proven reserves of 25.3 billion barrels of oil equivalent in 2014.
However, a new analysis from the Norwegian oil-and-gas consulting firm Rystad Energy has cast doubt on the size of the Saudi reserves. Rystad says the United States, not Saudi Arabia, is the country with the largest volume of oil reserves in the world.
After analyzing data from 60,000 wells over a period of three years, Rystad Energy estimated U.S. recoverable oil from existing fields, discoveries and yet undiscovered areas stands at 264 billion barrels. This surpasses Saudi Arabia's 212 billion and Russia's 256 billion barrels.
The Rystad data distinguishes between reserves in existing fields, in new projects and potential reserves in recent discoveries and in yet undiscovered fields – in other words, only the economically viable reserves.
Other global oil reserves data, such as the closely watched BP Statistical Review based on official reporting from national authorities, show the United States behind countries such as Saudi Arabia, Russia, Canada, Iraq, Venezuela and Kuwait.
Calculating oil reserves is a complicated and tricky business, as countries deploy different, often opaque, methods to measure their resources.
A decade ago, investment banker and author Matthew Simmons was among those who raised questions about the crude oil reserve figures of OPEC member states. The assertion generated a healthy debate at the time. But it died down once the global energy scenario underwent a complete metamorphosis with the onset of the U.S. shale boom.
Indeed, with most crude assets in OPEC countries under state control, state secrecy meant that few outsiders know with any degree of accuracy what the country's actual reserves were or the correct total production levels to date.
And with Aramco and other national oil companies holding most of the assets globally, and not permitting any independent audit of the data they release, the way Rystad reached its conclusions remains questionable, too.
Regardless, with stakes running so high, Saudi Aramco is fully aware of the pitfalls. Speaking to the German newspaper Handelsblatt, Saudi Energy Minister Khalid Al-Falih explained that "the actual IPO time frame will also be subject to a number of external factors, including equity market conditions, oil price outlook and domestic capital market readiness."
Given all this, the timing of the Rystad report is crucial. To potential investors, this carries considerable weight. The report doesn't shed a particularly positive light on Saudi Aramco's asset base – which affects the very valuation process. It has the potential to delay or hamper the overall privatization process of the Saudi family silver.