Renaissance Capital Issues Pre-IPO Research on Saudi Aramco

Saudi Aramco is expected to raise more than $25 billion in the largest IPO of all time, and begin trading on Saudi Arabia's Tadawul exchange next week. Renaissance Capital has issued a pre-IPO report to clients of our institutional research portal, IPO Intelligence.

For a free sample of the Aramco report, institutional investors and investment bankers may contact us here.

Request the Aramco Report.

Below we preview some of the findings from our report.

Saudi Aramco is the world’s largest oil producer. During 2018, it produced 10.3 million barrels per day (mmbpd) of crude oil, 1.3 mmbpd of other liquids, and 9.8
billion cubic feet of natural gas and ethane per day for a total of 13.6 million barrels of oil equivalent per day (mmboepd) from 136 fields located
in Saudi Arabia. In 2018, it sold 62% of its crude oil production to third parties under long-term agreements (53% of revenue) The remaining oil was used in its downstream operations (29% of revenue), which include wholly owned refineries in Saudi Arabia and partly owned refineries in Saudi Arabia, east Asia, and the US, as well as petrochemical facilities. The company plans to pay at least $75 billion of dividends in 2020.

Market Opportunity, Competition
Aramco has a 13% market share of global oil production, making it the world's #1 player. It is #4 by refining capacity. Saudi Arabia’s breakeven Brent price on new projects is below nearly every other country in the world. Aramco primarily competes with integrated oil and gas companies (IOCs), such as ExxonMobil, Shell, Chevron, Total, BP, as well as national oil companies.

Key Issues
Like most oil producers, Aramco is highly exposed to oil prices. Long-term demand for oil could decline due to interest in renewables. The company faces geopolitical risk as well: Several of its facilities have been attacked by drones linked to Saudi Arabia's war in Yemen.

Recent Financial Trends
During the six months ended June 30, 2019, revenue fell 2% to $164 billion, largely due to a decrease in prices, and partly offset by a slight increase in production. EBITDA fell 7% to $99 billion due to increased purchases of crude oil from third parties.


Aramco’s crude oil production was 10.3 mmbpd in 2018, and Saudi Arabia has indicated that it will maintain this production level through at least March 2020. We model the company's crude production, Brent oil prices, and additional revenue from the SABIC acquisition, and their impact on top and bottom-line growth. While EBITDA margins are set to decline due to SABIC’s lower margins, this will be partly offset by a lower royalty structure beginning in 2020.

Corporate Governance
Saudi Aramco is led by an executive team with decades of experience at the company. Its independent directors include the former CEOs of Schlumberger, Sunoco, Dow Chemical, and Chevron Phillips Chemical. Aramco maintains close ties with the Saudi Arabian government, which we describe in more detail in the full report.

We compare Saudi Aramco to integrated and national oil and gas companies like Exxon Mobil, Chevron, Eni, Petrobras, and 10 other comps, focusing on EV/EBITDA, P/E, and dividend yield.

Technical Strength
Oil price fluctuations have caused Aramco's top peers to have mixed trading in recent months. International demand for the deal was lower than expected, and the company dropped its plans to market in the US and Europe, instead focusing on domestic and Middle East investors. While it will still be the largest IPO of all time,
Aramco originally planned to raise far more. Liquidity could be negatively impacted by the its relatively low float (1.5%) and relatively large proportion of the total Tadawul market.

The article Renaissance Capital Issues Pre-IPO Research on Saudi Aramco originally appeared on IPO investment manager Renaissance Capital's web site renaissancecapital.com.

Investment Disclosure: The information and opinions expressed herein were prepared by Renaissance Capital's research analysts and do not constitute an offer to buy or sell any security. Renaissance Capital's Renaissance IPO ETF (symbol: IPO), Renaissance International ETF (symbol: IPOS), or separately managed institutional accounts may have investments in securities of companies mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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