A primer on the Saudi Aramco IPO
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A primer on the Saudi Aramco IPO

On November 9, Saudi Aramco released a prospectus ahead of a planned share offering that could rank as the largest IPO in history. 

 

At 658 pages, the document is a deep dive into Aramco’s corporate structure and physical operations.

What would Aramco disclose about its oilfields? Would we learn anything new about production trends and maximum capacity rates? What about Aramco’s operations abroad?

 

One new topic that Aramco would have to address would be the September 14 attacks against the critical oil infrastructure. This event highlights the geopolitical risk that accompanies an Aramco investment. 

 

The following are key points found in the prospectus, starting with the Sept 14-attacks.

 

What happened on Sept 14? Unmanned aerial vehicles and missiles targeted the Abqaiq facility and processing facility causing explosions, fires and serious damage.

 

Why are Abqaiq and Khurais important? Abqaiq is Aramco’s largest oil processing facility. It processes 50% of the company’s crude oil. Khurais is a major oil field with a capacity of 1.45 million barrels per day (bpd).

 

How long did the fires last? The fires were extinguished seven hours after first impact.

 

Did production fall after the attacks? Yes. Aramco reduced crude oil production by 54%.

 

Were Saudi crude grades impacted equally? No. Arabian Light and Arabian Extra Light were more impacted than medium and heavy grades.

 

What steps were taken to minimize the loss of supply? Aramco tapped crude inventories outside Saudi Arabia, swapped grades of deliveries to Arab Medium and Arab Heavy, and increased production at other fields.

 

NOTE: There was also a sharp drawdown in domestic inventories. Saudi storage fell by 15% over the two weeks ending September 26, according to Ursa data. 

 

 Source: Ursa

 

Where does Aramco have access to oil storage overseas? There are four locations: Ain Sukhna (Egypt), Fujairah (UAE), Rotterdam (Netherlands) & Okinawa (Japan).

 

In the Port of Rotterdam, Aramco bought an ownership stake in 2017 from Gunvor in a company called Maasvlakte Olie Terminal (MOT). MOT provides tank storage services at Rotterdam.

 

NOTE: Our coverage of crude inventories includes those four locations. Because we measure individual tanks, our data contains more granular information than by interpolating inventories at an entire site through shipping flows.

 

We measured MOT-owned tanks at Rotterdam falling sharply last month. For the week ending October 17, inventories were 24% lower than four weeks earlier.

 

Has production returned to normal? Yes. Aramco’s production returned to pre-attack levels on Sept 25.

 

Is there more work to be done? Yes, repairs are ongoing to fully restore operations at Abqaiq and Khurais. Aramco didn’t provide further details or specify a timeline.

 

NOTE: Ursa analysts recently reviewed satellite imagery of Abqaiq that showed major construction is underway on the stabilizer columns. 

 

The image below shows scaffolding around two columns and cranes present at both sites.

 

Abqaiq, Saudi Arabia (Oct 25, 2019)

Image credit: SkySat

Annotations: Ursa

 

Repairs of spherical tanks damaged in the attacks have been mostly complete. Construction was ongoing at a few spherical tanks.

Abqaiq, Saudi Arabia (Oct 25, 2019)

Image credit: SkySat

Annotations: Ursa

 

How much is Saudi Arabia’s crude production? In 2018, production of crude oil (including condensate) averaged 10.3 million bpd.

 

What’s the most Saudi Arabia can produce daily? 12 million bpd of crude oil. That figure is the average maximum number of barrels per day that can be produced for one year given three months to plan.

 

What are the capacities of some major oil fields? Here’s a rundown:

  • Ghawar: 3.8 million bpd

  • Khurais: 1.45 million bpd

  • Safaniyah: 1.3 million bpd

  • Shaybah: 1 million bpd

  • Manifa: 0.9 million bpd

  • Zuluf: 0.825 million bpd
     

What is the East-West pipeline? The East-West pipeline links oil production in the Eastern Province (where most production occurs) and the Red Sea port of Yanbu. This artery gives options for Aramco to export from the Arabian Gulf and the Red Sea.

 

The pipeline carried an average of 2.1 million bpd of crude last year. By the end of 2019, the capacity will be increased to 6.2 million bpd from 5 million bpd by using drag reducing additives. 

 

That capacity figure refers to what is possible over a period of six months. Over a shorter duration, the capacity could be as high as 7 million bpd.

 

How many refineries does Aramco own? Here’s the breakdown by ownership type and location:

 

Domestic, wholly owned

  • Ras Tanura: 550,000 bpd

  • Yanbu: 250,000 bpd

  • Riyadh: 130,000 bpd

  • Jazan: 400,000 bpd (under construction, completion date 2H 2020)   

Domestic, affiliated

  • SATORP: 400,000 bpd

  • YASREF: 400,000 bpd

  • SAMREF: 400,000 bpd

  • SASREF: 305,000 bpd

  • Petro Rabigh: 400,000 bpd

International

  • Motiva: 635,000 bpd (US)

  • S-Oil: 669,000 bpd (South Korea)

  • FREP: 280,000 bpd (China)

  • Showa Shell 445,000 bpd (Japan)

For decades, the details of Saudi Arabia’s oil industry was a mystery to the outside world. But times are changing. 

 

Disclosures required by an IPO and intelligence gained from satellite imagery have provided an understanding of the country’s inner workings that were unthinkable only a few years ago.

 

Combining these sources can also improve analysts’ estimates of Aramco’s valuation. The ranges are massive. For example, Morgan Stanley values Aramco somewhere between $1.06 trillion and $2.5 trillion.  

 

Keep reading for more insights. And sign up here for a free evaluation of our data.

 

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