No fun being a Saudi Aramco investor

Eight years ago, on April 23, 2017, I wrote here about Saudi Arabia’s (SA) intentions to sell shares of its national treasure, the Saudi Arabian oil company Aramco, to global investors.

SA’s crown prince, Mohammed bin Salman (MbS), had just emerged as the de facto ruler of the absolute monarchy, after his brief stint as minister of defence. As such he had waged war in Yemen, with a relentless, yet ultimately indecisive bombing campaign.

The planned initial public offering (IPO) was a global sensation, wetting appetites of investment bankers hoping to cash in big time on commissions. The IPO would set all kind of records: selling 5% of hitherto state-owned stock at a valuation of two trillion dollars would have made Aramco the biggest company on earth at the time, and its IPO the biggest ever.

In my analysis I had tried to weigh the pros and cons of the unique investment possibility. It was at a time when the world was still enthusiastic about the 2015 Paris Agreement, when 197 signatory nations were seemingly ada­mant to arrest the fateful consequences of climate change. The signatories of the agreement had made clear their intentions to progressively curb the use of fossil fuels and to arrest the rise of global, emission-induced temperatures “at or below 1.5 degrees Celsius”.

We know now that this threshold has been already exceeded, and that the United States under Trump is intent to further dial up the thermostat. If, as I had to assume at the time, nations would have stuck to the agreement, more than a third of reported reserves of the world’s fossil fuel producers would have to stay underground, weighing on their valuation and their future profitability.

Aramco, as the owner of the world’s biggest proven reserves after Venezuela, would be a dying asset, I cautioned. Saudi Arabia, which consumes most of its oil itself, would in a warmer and even more arid climate eat up ever more of its production, shrinking exports.

The IPO was preceded by a royal decree, reducing corporate taxes in the kingdom from 85% to 50%, leaving a bigger slice for dividend recipients. Yet the 20% “royalties” would stay in place.

I had argued that friendly royal decisions could be revoked at any time, and with 95% of shares remaining un­der state control there was little hope that international investors would receive a red-carpet treatment for ever. (As it has turned out in the meantime, investors face ownership risks even in the US!)

With SA’s finances deteriorating, legal risk became even more of an issue. After all, SA’s budget deficit was now a permanent feature, with oil prices staying stubbornly below the $95 per barrel threshold needed to balance the books. The oil price at the time averaged about $50.

The sale of small parcels of stock, meant to be repeated in regular intervals, was, in fact, a means to raise money that Aramco could not earn in sufficient volumes. As I had pointed out, speculation ultimately anchored at one’s estimates of the future oil price. Aramco stock, as it is true with Big Oil in general, is mostly a commodity play.

The IPO took place much later, in December 2019, and as a more modest undertaking. Only 1.5% of stock was on offer, on the Saudi Tadawul Stock Exchange, rather than the New York Stock Exchange. The final valuation was $1.7 trillion, still a mind-boggling figure, and the offering raised impressive $25.6 billion.

Yet investors had to be strong-armed to pick up on the offer. Most of the modest free-float ended up with local institutional and private investors.

International institutional investors had to be lured, or blackmailed, with the prospects of continued market access.

A lot of things happened since  my piece  was published eight years ago that I could not have anticipated. In October 2017, MbS presented to the world his Vision 2030, which included the construction of a 26,000km², futuristic mega-city at an estimated mega-cost of $8.8 trillion. The staggered sale of Aramco had become a necessity.

Despite its allegedly cheap production costs, Saudi Arabia’s financial needs and further diluting stock offers will continue to depress Aramco’s share price. Its earnings cannot cover its regular dividend payments- Andreas Weitzer

A month later, after the international guests staying in the glitzy Ritz Carlton hotel in Riyadh had left, 500 princes, ministers and well-connected businessmen were rounded up and incarcerated in the same Ritz. They were only allowed to leave after $800 billion worth of cash and assets had been handed over to the government.

In October 2018, the Washington Post columnist Jamal Khashoggi was strangled and then hacked into pieces in the Saudi consulate in Istanbul – presumably on orders from MbS. Then COVID struck, sending the oil price into nega­tive territory in March 2020. The proud owners of Aramco stock looked at staggering paper losses.

Their fortunes revived with Russia’s invasion of Ukraine. For a short while the oil price shot up to $100 a barrel. It did not last. Not even the recent attack on Iran has lifted the oil price. Brent is stuck between $60 and $70. With Saudi Arabia trying to regain market share, OPEC’s increasing production quota, and everyone wanting to please Trump with a low oil price, it may not recover at all.

Aramco is now the worst performer of all oil companies, state-owned and private. Under the presumption of dividends reinvested, it has gained merely 16% since its fateful IPO, as calculated by Javier Blas from Bloomberg. Even sanctioned Rosneft  (+21.6%) and the eternal laggard BP (+24.8%) fared better. Compared with Shell (+58%), Total (+68%) and ExxonMobil (+101%), this is a devastating performance.

Investors who took part in a secondary, smaller offer last year have already lost 12%.

Despite its allegedly cheap production costs ($12 per barrel, against an average of estimated $28 for the rest of the world), Saudi Arabia’s financial needs and further diluting stock offers will continue to depress Aramco’s share price. Its earnings cannot cover its regular dividend payments. In the first half of 2025 Aramco reported free cashflow of $34.4 billion versus $42.7 billion dividend payments, which have already been heavily reduced when compared to last year’s.

This situation is aggravated by a bloated workforce (an addition of 10,000 workers in the last 10 years, when Big Oil was slashing costs rigorously), and rising debt interest payments.

To cover shareholders’ dividend expectations, particularly the state’s, Aramco is raising debt through international bond sales. For now it can afford it. Its gearing is still better than any other upstream producer.

Yet, to summarise, being a share­holder will never make you rich like the proverbial sheik.