Home' Trinidad and Tobago Guardian : January 28th 2016 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 28 • 2016
The chairman of Saudi Arabia s
state oil giant said on Mon-
day that plans for a possible
initial public offering are not
being driven by a need for
cash amid a global slump in
oil prices, but instead signal a desire for
greater openness to outside investors.
Speaking at an investment conference in
the Saud capital of Riyadh, Khalid al-Falih
said the potential listing of the world s largest
oil producer "is not for cash" but a "sign of
the times" that the kingdom is open for busi-
"If we do it, the percentage will not be
such that it s going to move the needle sig-
nificantly in terms of the government pro-
ceeds," al-Falih said, a reference to the poten-
He said that despite oil prices recently
dipping below $30 a barrel, Aramco s invest-
ments in oil and gas have not slowed down.
Earlier, al-Falih told the Saudi-owned Al-
Arabiya news channel that any initial public
offering of Saudi Aramco would not include
the kingdom s oil reserves.
Saudi Arabia has aggressively kept its pro-
duction levels high in what analysts say is
an attempt to keep its market share and
stymie the reach of US shale producers in
the global market.
Talking to reporters at the conference, al-
Falih said excessively high oil prices "pre-
cipitated" the current slump since "everybody
wanted to contribute to supply more than
the demand that was coming in."
He said Saudi Arabia has the scale and
capability to sustain the current slump in
prices for "a long, long time" but that "obvi-
ously, we don t wish for lower prices."
With around 80 per cent of Saudi gov-
ernment revenues generated from oil, the
kingdom has projected a budget shortfall of
US$87 billion in 2016. To diversify its economy
away from oil, Saudi Arabia is undertaking
urgent economic reforms, including a pri-
vatisation initiative that is partly driving the
possible listing of some of Saudi Aramco s
"The fact that the crown jewel of the king-
dom ... the company that has been generating
the predominant income to the treasury of
the kingdom of Saudi Arabia is being con-
sidered to be taken to the stock market, I
think is a sign of the confidence the kingdom
has in its enterprises," al-Falih said.
...may open IPO to
Saudi Arabian Oil Co may open a potential
share offering to international investors and
confirmed that the kingdom s crude reserves
won t be put up for sale.
Saudi Aramco, as the world s largest oil
business is known, is still considering "all
options" in any future public offering, includ-
ing the sale of shares internationally, chairman
Khalid Al-Falih said in an interview on Al
Arabiya television. The company isn t con-
sidering selling its oil reserves, he said.
"What will be offered is the economic
value of Saudi Aramco and not its oil reserves,"
Al-Falih said in the interview in Davos,
Switzerland. "The oil reserves belong to the
state. Therefore, we will offer the ability of
the company to produce from those reserves."
Saudi Aramco has announced it is studying
options for a share sale. While one route is
a full initial public offering, another is to list
some of its subsidiaries, the company said
in a statement earlier this month. Aramco
pumps all of Saudi Arabia s crude oil, with
production at 10.25 million barrels a day in
Saudi Arabia sees crude oil prices recovering
this year even if inventories remain high, Al-
Falih said. Oil demand grew last year almost
twice as fast as in 2014 and will keep rising
at a rate of at least 1.2 million barrels a day
this year, he said.
The kingdom isn t targeting higher-cost
shale oil producers by keeping its production
high, and it wants to see a market in which
supply matches demand, he said.
"We are not targeting shale oil producers
at all," Al-Falih said in the interview. "We
want low-cost oil producers like Saudi Arabia
to produce to a balanced market."
Saudi Arabia raised prices for feedstock to
petrochemical makers this year as part of
reforms to reduce state spending and to nar-
row the fiscal deficit. Al-Falih said that even
with the increase, local industries still pay
lower feedstock prices than their international
"When we raised the feedstock prices, we
knew that the margin for producers will be
squeezed but we looked at it as an incentive
for them to enhance their efficiency," he said.
Saudi Arabia is looking into privatisation
in all industries, and the government is mov-
ing forward with plans to sell shares in the
Saudi Grain Organisation, he said. Saudi Ara-
bian Airlines and Saudi Railways Organisation
are next on the list of state companies up
for sale. AP
Since last summer, energy executives have
been warning that the price of oil will remain
"lower for longer." That raises two questions,
however: How much lower and how much
Bob Dudley, the CEO of BP, who may have
been the first to apply that mantra to oil s crash,
now 19 months old, also may have answered
the first question. He was among several oil
moguls attending the annual World Economic
Forum in Davos, Switzerland, who had little, if
anything, positive to say about the outlook of
their industry for the coming year.
"There is excess supply out there," Dudley
said. "This reminds me of 1986." He was referring
to one of the worst crises the oil industry has
weathered, when prices fell below US$10 per
Since June 2014, when the average global
price of a barrel of oil exceeded US$110, the
price has plummeted by three-quarters, and
has lost fully 25 per cent of its value in the three
short weeks since the New Year. The world s
benchmark crudes are now fetching less than
US$30 per barrel.
And this downward pressure on prices will
continue for the foreseeable future, Dudley said,
though he expects a rebound eventually. "Prices
will remain low for longer," Dudley said, "but
The reasons for the depressed prices aren t
news, but bear repeating: OPEC is producing
at peak levels in an effort to keep prices low
and starve out competitors. China s once fire-
breathing economy is slowing down, dampening
its demand for oil. And, thanks to a nuclear
deal with the West, Iran will rejoin the world
oil market, soon cranking out an additional
500,000 barrels of oil per day.
The US Energy Information Administration
(EIA) reported Tuesday that it expects Iran s
annual average production of crude to rise from
2.8 million barrels per day in 2015 to 3.1 million
barrels per day in the coming year, or about 10
per cent of OPEC s total production. The EIA
report forecast Iranian output to reach about
3.6 million barrels of oil per day in 2017.
A group of oil executives and representatives
of oil-producing countries met privately at the
Davos forum to discuss these challenges, and
an anonymous participant later told Bloomberg
that lower capital spending caused by low prices
will probably help restore at least some balance
between the supply of oil and the demand for
it. But that, the source said, isn t expected before
The oil industry leaders attending the Davos
meeting aren t the only ones bearish about their
industry. The Paris-based International Energy
Agency, which advises 29 countries on energy
policy, issued a report on Tuesday warning that
"unless something changes, the oil market could
drown in oversupply."
"It is the third year in a row we have more
supply than demand," Fatih Birol, executive
director of the International Energy Agency, told
Bloomberg Television in Davos. "Prices will be
still under pressure. I don t see any reason why
we have a surprise increase in the price in 2016."
So all eyes appear to be on 2017 as the year
of oil s turnaround. But Yousef al Benyan, the
CEO of Saudi Basic Industries Corp, or Sabic,
a leading petrochemical group, says that won t
happen until the second half of the year, when
he expects new growth in China s economy.
"There is a lot of pressure from the supply
side" preventing a recovery until the third quarter
of 2017, al-Benyan said. "The second half of
2017 is going to be the time for a rebound."
Oil CEOs: Don't expect oil prices to recover until 2017
Saudi Aramco head
defends oil giant's
possible IPO move
Oilfield services firms expect a surge in mergers
and acquisitions during 2016, according to a survey
conducted by Pinsent Masons. The law firm said
that M&A activity will be driven by a desire to cap-
italise on distressed situations, grow international
market share and acquire new technology.
The survey, carried out among 200 senior executives
from oilfield services firms that have a presence in
the UK, revealed that 86 per cent of respondents
expect a surge in deal activity over the next 12 months
in spite of the oil price volatility. Seventy percent
said they are actively considering an acquisition
within the next year.
Pinsent Masons said that almost 74 per cent of
respondents to its survey identified the expansion of
overseas operations as the main driving force behind
deal activity, with 70 per cent expecting opportunism
around distressed assets to drive deals, while 60 per
cent are looking at technology-driven consolidation.
Companies operating in the offshore technology and
equipment segments were seen as the most-attractive
Participants in the survey revealed that Singapore,
Mexico, Indonesia, China and Nigeria are the most-
attractive emerging markets, with falling valuations
and new strategic deal structures presenting lucrative
outbound investment opportunities against the back-
drop of continued oil price volatility. In more mature
markets, 67 per cent of respondents said that the
UK would be likely to yield opportunity for buyers
over the next three years.
The survey also reveals that the industry is opti-
mistic about its prospects, with 96 per cent of respon-
dents predicting UK Continental Shelf recovery to
peak levels of profitability. Almost half (48 per cent)
expect the UKCS to rebound within five years, while
more than a quarter (28 percent) predict recovery
within three years, subject to a general improvement
in the oil price.
However, the survey also found that 83 per cent
of respondents have based their five-year investment
strategy on an oil price range of between US$60 and
US$80 per barrel in the face of the new "lower for
longer" consensus across the oil and gas industry.
Survey: Oilfield services
execs expect a surge of
M&A activity in 2016
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