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Trump-Saudi meet not focused on oil: Official

10 May 2017 23:54 (+01:00 GMT)
Trump-Saudi meet not focused on oil: Official

Washington, 10 May (Argus) — Global crude markets and Saudi Aramco's planned partial initial public offering (IPO) will not feature prominently in President Donald Trump's upcoming trip to Saudi Arabia, a State Department official said today.

Saudi Arabia is the first foreign destination for Trump's trip later this month, which also includes the Nato summit in Brussels and the G7 summit in Sicily.

Saudi Aramco has set plans for an IPO of 5pc of its shares next year and identified New York, London and Hong Kong exchanges as potential venues.

Deputy assistant secretary of state Tim Lenderking said that the US administration "would like [the IPO] to happen sooner rather than later." But he conceded that "is not quite ready for prime time — maybe next year, or next two years."

"We should avoid pushing Saudis too hard," he said, without passing judgment on the IPO. Lenderking, who oversees relations with Mideast Gulf Arab countries at the State Department, spoke on the sidelines of a conference hosted by Washington-based think tank Arab Gulf States Institute.

Saudi Aramco had no immediate comment on Lenderking's remarks.

The US administration is looking at the subject in the context of preparing Trump's visit to the leading Opec producer later this month. Trump, who has made promoting business opportunities for the US a key priority, would be willing to discuss the IPO, Lenderking said. But a busy agenda for the visit — dominated by Iran, Yemen and other national security subjects — may not leave time to address the subject.

"Oil specifically is not a focus [for Trump's visit], but the whole economic and commercial cooperation is," Lenderking said.

The subject of IPO was not directly addressed during US-Saudi foreign ministry consultations ahead of Trump's visit, Saudi foreign ministry advisor Prince Faisal bin Farhan al Saud said. "The IPO has taken a lion's share of attention, but we have a program to privatize other parts of our economy," he said at today's discussion, estimating non-IPO investment opportunities at $1.5 trillion.

US secretary of state Rex Tillerson said Riyadh should choose US companies for its procurement and service needs as it implements the economic transformation plan.

Proceeds from the Aramco IPO will be put into the Public Investment Fund, which the government wants to turn into the world's largest sovereign wealth fund. Saudi Arabia in March reduced Saudi Aramco's tax rate to 50pc from 85pc in an attempt to boost its attractiveness to investor.

Riyadh initially indicated that it expected Aramco to be valued at between $2 trillion and $3 trillion. But uncertainty surrounding long-term oil prices and the outcome of an audit of the company's crude reserves — which it has consistently put at 260bn bl — have generated speculation that the valuation could end up significantly lower. It could turn out as low as $400bn, according to consultancy Wood Mackenzie, although other analysts say $1 trillion is more realistic.

Saudi Aramco only owns leases, not the oil reserves, so there are questions over the value of main assets, Johns Hopkins University professor Jean-Francois Seznec said at a discussion yesterday hosted by Washington think tank Atlantic Council. The $2 trillion valuation comes from taking the price-earnings ratio of a company like ExxonMobil, Seznec said, adding that using the average price-earnings ratio for oil and gas company would yield a valuation of $1.5 trillion.

"This is absolutely not a fire sale. It is about diversifying the economy from one commodity," Eurasia Group analyst Ayham Kamel said. He suggested that 2019 was a more likely target for the IPO, in part because oil prices are more likely to bounce from current levels in two years, rather than in 2018.