Saudi Aramco — known to those in U.S. markets as the most profitable company on the planet — is looking to the future, post IPO.
In the minds of many on Wall Street, it’s a future of unknowns.
From theories of peak oil to crude’s effect on the planet to rising geopolitical tensions that put oil assets in Saudi Arabia at constant danger, the risks surrounding Aramco’s bottom line are quite real. Those concerns have weighed on Aramco’s stock in the months after its closely watched IPO, which debuted at the $2 trillion market cap valuation Saudi Crown Prince Mohammed Bin Salman sought on the roadshow.
“I am proud Aramco is now the world’s largest listed company, after having executed the world’s largest ever IPO,” Aramco Chairman Yasir Al-Rumayyan told Yahoo Finance in an exclusive interview. “The IPO was well over-subscribed in both the retail and institutional tranches, including investment from a number of international investors. This reflects confidence in the company and is a testimony to the strong investment case and attractive prospects for long-term shareholder value creation that we laid out at the time of the IPO.”
With the World Economic Forum and its various social discussions well underway in Davos, Yahoo Finance spoke with Al-Rumayyan at length about climate change, Aramco’s future and the outlook for the oil industry. This is Al-Rumayyan’s first interview since Aramco’s highly publicized IPO in December 2019.
Brian Sozzi: How pleased are you with the response to Aramco in public markets?
Al-Rumayyan: I am proud Aramco is now the world’s largest listed company, after having executed the world’s largest ever IPO. The IPO was well over-subscribed in both the retail and institutional tranches, including investment from a number of international investors. This reflects confidence in the company and is a testimony to the strong investment case and attractive prospects for long-term shareholder value creation that we laid out at the time of the IPO.
Sozzi: Do you feel as if there was money left on the table in the IPO process?
Al-Rumayyan: The IPO was more than four times over-subscribed, which reflected a strong mix of demand from retail investors, as well as institutional and international investors. With continued strong demand in the market, we recently exercised the greenshoe option and allocated 450 million more shares to investors, which raised an additional $3.8 billion, making our IPO worth $29.4 billion in total. As a result, we have executed the world’s largest IPO by both proceeds and market capitalization. We are proud of that achievement.
Sozzi: What do you think the fair value is for Aramco given its proven oil reserves and place in the global oil industry?
Al-Rumayyan: We are confident in our investment story, however, we do not comment on the company’s share price and valuation.
At the time of our IPO we outlined Aramco’s pre-eminent reserves that support our industry leading position on low cost and low carbon oil production; our strong and growing exposure to high growth regions such as Asia; our expansion into new markets in our downstream business; our resilient and attractive levels of profitability, combined with our exceptional cash flow. All of which underpins the commitment we made to growing our dividend and returning capital to shareholders. What we have demonstrated over our 86-year history is that Aramco is a solid business and we are very confident in our ability to generate long-term value for our shareholders.
Sozzi: Is the much publicized $2 trillion market cap benchmark still important?
Al-Rumayyan: We do not comment on our share price and value of the company. That is for the market to decide.
Sozzi: What are some of the initiatives on the table over the next decade that you think will support a high valuation on Aramco?
Al-Rumayyan: In the years to come we will further build on our position as the world’s pre-eminent integrated energy and chemicals company, operating in a safe, sustainable and reliable manner. We are committed to maintaining our pre-eminent upstream position as the world’s leading crude oil producer by production volume and the lowest cost producer. We will further diversify operations to capture value from strategic integration and we will expand gas activities in the Kingdom and internationally. We are also working on expanding our downstream operations. Aramco is already the fourth largest integrated refiner in the world on a net refining capacity basis. We will further build on a portfolio that spans the entire hydrocarbon chain: refining, marketing, petrochemicals, lubricants and retail. Our downstream expansion also has a strong focus on building a world-class chemicals business. The acquisition of SABIC [ Saudi Arabian Basic Industries Company] is expected to further enhance our international footprint.
Sozzi: Aramco assets were the target of a drone attack late last year that negatively impacted half of the Kingdom’s oil production. In light of this and recent geopolitical tensions between the U.S. and Iran, are you concerned Aramco could be a target again? What’s your message to investors who are concerned about these rising geopolitical tensions between the U.S. and Iran?
Al-Rumayyan: As demonstrated over our 86 year history, we have consistently proven to be a reliable supplier under difficult circumstances. Although we endured violent attacks on our facilities last year, our supply to customers was not interrupted and we restored our production levels within weeks. This clearly demonstrates that we are an extremely resilient and reliable supplier.
Sozzi: The World Economic Forum in Davos this year is very focused on climate change and the impact it will have on the future of business. How do you envision climate change shaping Aramco’s future?
Al-Rumayyan: We will continue to deliver low-carbon intensity oil and gas for a global economy that is forecast to double in size by 2050 and in which almost 2 billion additional people will need affordable energy. So, overall demand for energy will most likely be substantially higher than today. This means that the world faces a dual challenge: we need more energy and we need fewer emissions.
Aramco’s answer is that we can do both, as technological advances can help us simultaneously contribute to clean energy supply and economic development. We have a strong track record when it comes to leveraging technology to lower emissions: Our oil production is among the cleanest in the world. We have invested for decades in efficient processing and we minimize flaring and water in our processes. As a result, the company’s 2018G upstream carbon intensity was 10.2 kilograms of carbon dioxide equivalent per barrel of oil equivalent. We constantly look for new ways to mitigate emissions. For example, we inject captured CO2 into the ground and we convert captured CO2 into useful industrial products.
Sozzi: Along the same lines, transportation via electric cars, buses and bikes are only likely to increase in the next decade. Will that weigh on Aramco’s profits over time?
Al-Rumayyan: Projections show that by 2040 combustion engines will remain a dominant power source used in the transportation sector. This is especially true because electrification for heavy duty road, marine and aviation engines is not an option anytime soon. That is why Aramco, as part of its Research and Development programs, works with car manufacturers on making engines — and the fuels that power them — produce fewer emissions.
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