Posted on 01/25/2016 7:17:59 AM PST by Citizen Zed
The chairman of Saudi Arabia's state oil giant said on Monday 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 Saudi 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 business.
"If we do it, the percentage will not be such that it's going to move the needle significantly in terms of the government proceeds," al-Falih said, a reference to the potential listing.
He said that despite oil prices recently dipping below $30 a barrel, Saudi Aramco's investments 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 production levels high in what analysts say is an attempt to keep its market share and stymie the reach of U.S. shale producers in the global market.
(Excerpt) Read more at abcnews.go.com ...
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.
I don’t think they are in trouble. I think they are positioning for the very long term.
The Saudis are extremely cash strapped. They have enormous expenditures financing the jihadists in Syria and Iraq ( the Russian intervention vastly increased their costs), waging war in Yemen and subsidizing the cost of essentials in Egypt to keep that huge Sunni nation “stable”. They also have large commitments throughout the Sunni world. The Saudis are also liquidating large portions of their investment portfolios. This selling is contributing to the decline of stock prices. The Chinese are also selling to raise cash to support the yuan. The corrupt and decadent House of Saud is under severe pressure and may not be long for this world.
The Saudis will last years past several other OPEC countries in the low oil price environment. Cash strapped doesn’t describe a countries with years worth of cash reserves.
Not true. Take a closer look. They doubled the cost of gasoline within the “Kingdom” to raise cash. They are pumping as much as possible from their huge reserves and are selling at very low prices to raise cash. That is something they have never done. They are very hard pressed.
Saudi Arabia is trying to create a post oil economy. Divesting from the oil industry is a step in that direction.
They reduced an outrageous subsidy to a really large subsidy. It used to be 16 cents a liter. Now it's gone up to 24 cents.
They have years of cash reserves.
http://www.cnbc.com/2015/12/03/biggest-cash-issue-for-saudi-arabia-goes-beyond-oil.html
Many talk about how Saudi Arabia will be bankrupt in 5 years if the oil prices stay low. Long before that, several other OPEC countries will fall apart and oil production will be disrupted, raising prices. Look at financials for Nigeria, Venezuela, Algeria, Libya, Angola...
First, I generally agree with allendale. Succession has become muddled and the deputy crown prince is acting like king already in some of his idealistic appearing actions. Frankly I see the house of Saud in a panic having sown the wind in their price crashing actions. It is a strange.
Liquidation of Saudi investment portfolios is a factor that a lot of people miss and I believe it is real and having an impact on our markets. The shutting down of the Al Jazera network here is not just happenstance or loss of viewership. They knew what they were getting into when they started it and they are cutting out costs that are even minor.
I don’t think they are in real trouble yet but I don’t think they thought through the end game of their ploy or the risks of it either. They are going on two years into their scheme and I calculated that the sovereign fund could subsidize an oil price much higher than it is now for about 5 years. The clip of harvest of their nest egg has been faster than I projected.
Positioning for the long haul by offering their refining side of Aramco? I’m missing what this does in the long haul. What I see is something I don’t want to own. A company controlled by a majority and other shareholders with no say so and not a whole lot of arbitrage. I’ve seen that play before and want none of it.
Personally, I see just the opposite. I see them making long term plans to effectively survive the "low oil prices for longer" better than most of the other OPEC nations.
They are investing more for future production. They are investing significantly for refining and petrochem. They borrowed more long before their credit rating dropped while they still had years of cash reserves.
In the meanwhile, they are trimming costs, selectively borrowing, raising revenues and taxes, and cracking down on internal dissent and on their restive Shiite minority. The Saudis are also trying to develop a capacity for fracking and are using it to develop natural gas for electric power generation so that the oil saved can be exported.
For a thuggish regime held in disdain by much of its populace and most of the world, these new policies involve risks and uncertainties. More than that, they indicate that the days when the Saudis could open up their checkbook and do as they wished are passing. The Saudis will have to tread carefully. To the category of presumptive enemies who will not be bought, the Saudi regime must now deal with an even larger category of people they can no longer afford to buy.
I don’t see it that way but that is what makes horse races.
KSA can’t manage single handedly to make up the declines in production at the current prices or any other low price environment below about $60 real. Under those prices there is little new production investment possible just about anywhere. Under current conditions, unless someone can pull 2 to 4 mmbo/d of production out of their hip pocket supply and demand converge in far less than a year with modest growth and decline rates of only 1%. Decline in production of 1% is very modest by historical standards and extremely unlikely when drilling stops as it has for all intents and purposes now.
By almost all estimates Iran has been producing and selling or using about 3.5 mmbo/d and their capacity in three years or so can rise to about 4 mmbo/d. I do not see that as a flood of the market.
Do you expect demand for oil to drop in favor of what?
We have reached a point where 1% either way represents nearly 1 mmbo/d in production. If the two happen at the same time the gap is soon diverging at 2 mmbo/d per year. That will create a price spike in short order. I can’t see demand dropping with prices this low and I can’t see KSA continuously pulling 1 mmbo/d in new production out of their hat on a regular pace. With prices this low they are about the only ones who can afford to do it IF they had the resources. Have they been keeping another Ghawar or two hidden from the whole world?
So why then is KSA hunkering down for a low price environment for a long time?
Agreed.
Under current conditions, unless someone can pull 2 to 4 mmbo/d of production out of their hip pocket supply and demand converge in far less than a year with modest growth and decline rates of only 1%.
Agreed.
Iran has been producing and selling or using about 3.5 mmbo/d and their capacity in three years or so can rise to about 4 mmbo/d. I do not see that as a flood of the market.
Agreed.
Do you expect demand for oil to drop in favor of what?
I don't expect a decline in demand. I expect growth, perhaps slower growth than the last 3 year average, but still growth.
I can’t see KSA continuously pulling 1 mmbo/d in new production out of their hat on a regular pace.
That would be unlikely, but also recognize over the past year, while drilling rigs have reduced worldwide, Saudi Arabia brought in more rigs last year.
So why then is KSA hunkering down for a low price environment for a long time?
I don't think anyone really knows how low, how long. I don't recall seeing anyone 18 months ago that predicted where we are today.
I see Saudi Arabia remaining in strength longer than many in OPEC, and prepared to recover faster than most in OPEC. If that is in 1 year or 2 years or 3 years, I think they will be ready with more capital to put back in than others.
I should have added, I also see Saudi Arabia preparing for a more extended price of $60~70 a barrel, rather than the ~$100 they needed to match past government spending.
OK then we are getting somewhere and not because you agree with me. (more and more I am seeing that as a criteria others use for gauging progress in discussion).
I suggest that KSA is drilling as much as they are to manage their own decline and perhaps and hopefully provide a brief period of high initial production to continue being able to “flood” the market. High IP is easily achievable in accessing undrained infill positions within a water flood such as most of their fields. It has been done many times before to boost the books so to speak.
Both EIA and IEA data suggest the trend is between .5 and 1.2 mmbo/d in “excess” production. At the current conditions clip that is exhausted in less than one year. In the past price has increased when convergence is achieved and not when the storage is depleted. Thank goodness for that! Otherwise we would not have had the cushion against shortages and devastating price spikes while the industry tries to get back on a footing to produce the oil that is needed.
I think it is interesting and pertinent to note that the industry is expected to manage supply to within about 0.4% of demand and there is a “glut” where the world is proclaimed awash with oil. Such a dead band of control is absolutely unreasonable for a behemoth such as this industry. The inevitable outcome is over control and wild swings to something resulting in equally wild swings in price. If you were to control the temperature of your house to such a degree you would have a dead band of about 0.28 degrees F. The result of that effort would be short cycling of your HVAC and probably burning it and maybe your house down. It has happened before.
As I have noted before, 60ish is not economical for most regions of the world to convert resources to reserves and new production. Oil is too hard and too costly to find and produce now. We will not run out anytime soon but we are running out / have mostly run out of the easy and cheap stuff. I am doubtful that they or any other small group of their ilk that can afford to provide new supplies can do enough to prevent shortages and thus, if they persist and are acceptable in holding prices to the 60/70 range another price spike will ensue worse than the last one and so it will go over and over again as they attempt to do what is now impossible, control market share and for what? A combination of low price and high volume of less revenue than letting the market take its course? I just can’t figure it.
There are additional important points that has very significant political and strategic implications.
1) Oil is an industrial commodity. Like other industrial commodities the price is weak because the world is in a serious recession. Demand is not strong. Until the world starts producing hard goods, generates more electricity and literally gets moving, demand will remain weak and growth sluggish
2) It is not likely that the West will ever be subjected again to a 1974 type oil embargo. Oil producers are more dependent than ever on the hard currency they obtain from sales to sustain themselves. Without the hard currency many would starve or wither. There would be political instability. Oil producers will beat a path to the door of anyone with hard currency and a willingness to purchase their oil. Oil producers such as Saudi Arabia are losing their coercive trump card. Despite their still real “wealth” they are far weaker players on the world stage.
3) New technologies such as fracking and shale oil extraction techniques are profitable at the $40-45/ barrel level. Producers can be up and running very quickly. If somehow, no oil came to the US from abroad, the US theoretically is quite self sufficient. American foreign policy is not constrained by the energy realities of the 1970s, 80’s and 90’s.
3) New technologies such as fracking and shale oil extraction techniques are profitable at the $40-45/ barrel level. Producers can be up and running very quickly. If somehow, no oil came to the US from abroad, the US theoretically is quite self sufficient. American foreign policy is not constrained by the energy realities of the 1970s, 80’s and 90’s.
Who told you that?
The US Dept. of Energy states that ex situ processing is economic at $54/barrel and in situ processing at $35/barrel. Once the drilling horizontal or vertical has been completed and the capital investment made, reactivation of a site is not a prolonged process. This industry however is subject to environmental constraints and the attitude of those controlling Federal and State regulatory agencies. The point is that this new technology has at a price, that with R&D ought to decline, put the US in a far different political and economic position than it was in fifteen years ago. Foreign policies have not yet reflected those changes but inevitably will soon.
I think the numbers you are quoting are for oil extraction from kerogen in real honest to goodness Utah and Colorado Book Cliffs shale. It is for processing and does not include massive amounts of CAPEX to access the shale. Not much of that going on except a pilot project or two maybe and I’m pretty sure they are funded with tax payer dollars.
Check the breakeven number on Unconventional shale oil produced from wells by flowing and pumping instead of processing of shale rock insitu or exsitu. Those projects have been pretty much abandoned. Most are finding that unconventional shale oil production from the Bakken and Eagle Ford and places like that is a chapter out of a book called Ponzi. They require near continuous cash feed to keep going below somewhere between $70 and $80 a bbl.
Its obvious that you are an expert. However there is little doubt that fracking and the new technologies have altered the oil and gas dynamic within the United States. There are political ramifications and US foreign policy will soon reflect the new energy realities.
Yes, things have come a long way since I read my first oil well log, saw porosity and oil but no water in shale and asked why we can’t produce that. The answer was, “That’s shale boy. Everybody knows you can’t produce oil and gas from shale.” Of course I asked why not and then got busy making a living instead of taking it further.
Getting it out of the ground does not always make it economic even if the well pays out. I know that sounds strange. Early time money makes NPV and RoR. Out year money pays for new wells and dividends and light bills. If you can’t build enough production to grow organically you don’t have a sustainable business.
There are geopolitical ramifications yes but don’t take them to the bank just yet. Some of us think we are a long way from being the new Saudi Arabia of oil and gas. They did make KSA nervous enough to whack shale but they are also whacking Russia and Persia.
Watch the production from here out this year. Let’s see what it does.
http://www.eia.gov/petroleum/weekly/crude.cfm
I read my first well log about 4 decades ago.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.