DUBAI—Ahead of a multibillion-dollar bond issue, Saudi Arabia warned investors of the challenges that cheap oil poses to its economy and said it would take 70 years to sell all of its oil, prompting concerns that some of it could go unrealized.
The disclosures—included in the government’s bond prospectus issued on Tuesday—raise questions over the ability of the oil-dependent kingdom to quickly turn around its economic fortunes after more than two years of low crude prices.
The uncertainty over kingdom’s ability to quickly sell its oil assets could carry implications for the valuation of state-owned oil giant Saudi Arabian Oil Co., or Aramco, whose planned public listing in 2018 could raise tens of billions of dollars for the Saudi government.
On the one hand, the 70-year timeline suggests that Saudi Arabia is confident that it is sitting on a bounty of petroleum that will last for generations. On the other, investors are worried about fast-changing climate-change regulations and technological advancements that could render oil less valuable in the future.
To shore up its finances, the kingdom is turning to the international bond market for the first time, set to issue debt that bankers expect will exceed $10 billion this month.
In the prospectus sent to investors, the Saudi government outlined the risks of investing in the likely bond issue in the current economic climate, saying it expected the budget deficit for 2016 to be 326 billion Saudi riyals ($87 billion), or 13.5% of nominal gross domestic product. The budget deficit swelled to a record $98 billion last year, or 16% of GDP, after the government posted a fiscal balance in 2013.
The kingdom’s proven oil reserves, still the bedrock of the economy, stood at 266.5 billion barrels—or 18% of the world’s total—at the end of 2015 and are likely to last another 70 years at the average production levels of about 10.2 million barrels a day last year, according to the prospectus. The kingdom’s proven gas reserves were 303.3 trillion cubic feet, the fourth-largest of any country.
The Saudi government warned potential investors about the valuation of the energy reserves which is a “subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner.”Like most oil companies, the Saudi government didn’t put a dollar value on those reserves. It warned potential investors that valuing oil reserves is a “subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner.”
But the kingdom’s 70-year timeframe for pumping all of its oil stands in contrast to the shorter horizons for most oil companies. Exxon Mobil Corp.’s estimated timeline for producing all of its reserves, for example, is 16.5 years, said Chad Mabry, a senior research analyst at FBR & Co. covering the energy industry.
Aramco’s time horizon for production “makes sense if you’re running a sovereign wealth fund,” he said. “It makes less sense if you’re running a public, for-profit enterprise.”
Investors are watching for more transparency around Saudi Arabia’s oil reserves, which aren’t owned by Aramco and will remain under the control of the Aramco government. The country’s reserves have hovered around 260 billion barrels for years without changing much, despite the country pumping around 10 million barrels a day without major new discoveries.
“The way the Aramco IPO seems to be going, they will need independently audited reserves, for it to be taken seriously,” said Robin Mills, chief executive at Qamar Energy, a Dubai consulting firm. Aramco Chief Executive Amin Nasser declined to comment on Tuesday.
The kingdom has previously valued Aramco at an estimated $2 trillion to $3 trillion, suggesting Saudi Arabia could raise $100 billion to $150 billion through an initial public offering of 5% of the company’s stock.
The public listing, a central aspect of the government’s plan for economic changes, could involve Aramco itself, its subsidiaries, or both, according to the prospectus.
The methodology Saudi Arabia uses to estimate its reserves, which the kingdom hasn’t had independently assessed, may differ from what other producers or U.S. securities regulators use, the prospectus said.
For Aramco to list on the New York Stock Exchange, it would have to abide by the U.S. Securities and Exchange Commission rules. Besides Riyadh and New York, Saudi officials have previously said they are also considering a potential listing in London and Hong Kong.
The Saudi government also said in the prospectus that the kingdom could reconsider its policy of fixing the local currency to the dollar, though for now Riyadh remains committed to pegging the Saudi riyal to the U.S. currency as part of its fixed exchange-rate policy.
Bets against the riyal’s peg surviving rose in recent months. Devaluation would make the export dollars that Saudi Arabia earns go further in local currency. But untying the riyal from the dollar could spark uncertainty about the kingdom’s economic stability and stoke inflation, analysts say, when Riyadh is also cutting back on state subsidies.
Saudi officials are scheduled to meet with investors starting Wednesday in London to gauge appetite for its planned issuance. The roadshow concludes next week in Boston and New York.
Under its economic transformation plan, the country says it is able to raise its ratio of public debt to nominal GDP to 30% by 2020. In 2015, the ratio stood at 5.9%.
Read more - https://www.goldcruderesearch.com/comex
The disclosures—included in the government’s bond prospectus issued on Tuesday—raise questions over the ability of the oil-dependent kingdom to quickly turn around its economic fortunes after more than two years of low crude prices.
The uncertainty over kingdom’s ability to quickly sell its oil assets could carry implications for the valuation of state-owned oil giant Saudi Arabian Oil Co., or Aramco, whose planned public listing in 2018 could raise tens of billions of dollars for the Saudi government.
On the one hand, the 70-year timeline suggests that Saudi Arabia is confident that it is sitting on a bounty of petroleum that will last for generations. On the other, investors are worried about fast-changing climate-change regulations and technological advancements that could render oil less valuable in the future.
To shore up its finances, the kingdom is turning to the international bond market for the first time, set to issue debt that bankers expect will exceed $10 billion this month.
In the prospectus sent to investors, the Saudi government outlined the risks of investing in the likely bond issue in the current economic climate, saying it expected the budget deficit for 2016 to be 326 billion Saudi riyals ($87 billion), or 13.5% of nominal gross domestic product. The budget deficit swelled to a record $98 billion last year, or 16% of GDP, after the government posted a fiscal balance in 2013.
The kingdom’s proven oil reserves, still the bedrock of the economy, stood at 266.5 billion barrels—or 18% of the world’s total—at the end of 2015 and are likely to last another 70 years at the average production levels of about 10.2 million barrels a day last year, according to the prospectus. The kingdom’s proven gas reserves were 303.3 trillion cubic feet, the fourth-largest of any country.
The Saudi government warned potential investors about the valuation of the energy reserves which is a “subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner.”Like most oil companies, the Saudi government didn’t put a dollar value on those reserves. It warned potential investors that valuing oil reserves is a “subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner.”
But the kingdom’s 70-year timeframe for pumping all of its oil stands in contrast to the shorter horizons for most oil companies. Exxon Mobil Corp.’s estimated timeline for producing all of its reserves, for example, is 16.5 years, said Chad Mabry, a senior research analyst at FBR & Co. covering the energy industry.
Aramco’s time horizon for production “makes sense if you’re running a sovereign wealth fund,” he said. “It makes less sense if you’re running a public, for-profit enterprise.”
Investors are watching for more transparency around Saudi Arabia’s oil reserves, which aren’t owned by Aramco and will remain under the control of the Aramco government. The country’s reserves have hovered around 260 billion barrels for years without changing much, despite the country pumping around 10 million barrels a day without major new discoveries.
“The way the Aramco IPO seems to be going, they will need independently audited reserves, for it to be taken seriously,” said Robin Mills, chief executive at Qamar Energy, a Dubai consulting firm. Aramco Chief Executive Amin Nasser declined to comment on Tuesday.
The kingdom has previously valued Aramco at an estimated $2 trillion to $3 trillion, suggesting Saudi Arabia could raise $100 billion to $150 billion through an initial public offering of 5% of the company’s stock.
The public listing, a central aspect of the government’s plan for economic changes, could involve Aramco itself, its subsidiaries, or both, according to the prospectus.
The methodology Saudi Arabia uses to estimate its reserves, which the kingdom hasn’t had independently assessed, may differ from what other producers or U.S. securities regulators use, the prospectus said.
For Aramco to list on the New York Stock Exchange, it would have to abide by the U.S. Securities and Exchange Commission rules. Besides Riyadh and New York, Saudi officials have previously said they are also considering a potential listing in London and Hong Kong.
The Saudi government also said in the prospectus that the kingdom could reconsider its policy of fixing the local currency to the dollar, though for now Riyadh remains committed to pegging the Saudi riyal to the U.S. currency as part of its fixed exchange-rate policy.
Bets against the riyal’s peg surviving rose in recent months. Devaluation would make the export dollars that Saudi Arabia earns go further in local currency. But untying the riyal from the dollar could spark uncertainty about the kingdom’s economic stability and stoke inflation, analysts say, when Riyadh is also cutting back on state subsidies.
Saudi officials are scheduled to meet with investors starting Wednesday in London to gauge appetite for its planned issuance. The roadshow concludes next week in Boston and New York.
Under its economic transformation plan, the country says it is able to raise its ratio of public debt to nominal GDP to 30% by 2020. In 2015, the ratio stood at 5.9%.
Read more - https://www.goldcruderesearch.com/comex
BOOK FULL PROFIT IN BANKNIFTY FUT, T2 ACHIEVED
ReplyDeleteStock Future Tips|stock cash tips