In about a year, Saudi Arabia is going to unleash the largest IPO in the world – ultimately transforming the entire energy investing landscape.
Make no mistake, the sale of a 5% position in oil giant Aramco will be a once-in-a-generation opportunity.
That's why, as the market moves toward this historic placement, it is something we're going to continue to follow closely here.
With the countdown clock to the deadline starting to wind down, today I'm going to sketch out everything my sources are telling me about this colossal IPO.
And then I'll show you how we're going to play it.
But first, you need to understand what this IPO means…
Saudi Arabia's "Next Move"
After the IPO, the Saudis will continue to control 95% of Aramco.
The overall value of both the placement and the company at large will be based on the market price of oil in the ground.
It also means the Saudis will have to provide transparent reserve figures, which has been a recurring concern since 1979.
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In that year, Saudi Arabia took over control of Aramco from a consortium of American companies.
That is also the last time there were any official figures on how much extractable crude oil was in the fields.
This is the "next Saudi move" in the IPO.
We will be moving into high gear once Aramco announces an independent third-party specialist to assess oil reserves, conditions of major reservoirs, and extraction potential.
This is where the IPO has "meat put on its bones."
Riyadh obviously wants as high a price for the IPO as possible.
However, that requires they release detailed reserve figures and projections.
In this sense, they are no different than any operating company floating shares.
The price an investor is prepared to pay is dependent on the market value of known extractable reserves, not on what is actually sold into the market on any given day.
But here is the crucial piece of information you need to understand…
This IPO will introduce a very different investment strategy that will transform perspectives and expectations as we have known them…
The Real Game Changer
As I've mentioned previously at Oil & Energy Investor, the real game changer is what the IPO proceeds will be used for.
The Saudis intend to diversify their domestic economy and wean themselves from being a rentier state dependent on selling oil.
But that diversification will come from a unique approach.
Rather than based primarily on moving non-oil industry into Saudi Arabia, the diversification will unfold by acquiring non-oil assets someplace else.
Let that sink in for a moment.
The objective will be to diversify the revenue flow, with the sources of that revenue both external and in broad sectors of the market.
Consider this: The model for such an approach already exists.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.