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We've been talking about Saudi Arabia's plan to roll out the single-largest IPO in history for some time now.
Right off the bat, I can tell you that the Saudi IPO is going to create an onslaught of profit plays for years to come after the actual listing.
Think about it.
$2 trillion could soon be hitting the global energy markets. This could be the biggest wave of capital to hit at one time in history.
Earth-shaking events like these are the reason why more millionaires and billionaires are created overnight in the energy markets than in any other sector.
That's also why I want to take a few minutes today to tell you everything you need to know about Saudi Aramco, including how much it's really worth, where it will be listed, and how you can profit from it.
And we'll start with how Saudi Aramco came to be the biggest oil company in the world...
What Is Saudi Aramco?
Simply put, Aramco is the national oil company of Saudi Arabia, but it didn't start out that way.
Aramco actually began as part of the Standard Oil Company of California (Socal), the company owned by the original oil baron, John D. Rockefeller, when it signed an oil contract deal with Saudi Arabia in 1933.
The deal created the California-Arabian Standard Oil Company, which would eventually turn into the Arabian-American Oil Company - Aramco - in 1944.
Then, in 1950, Saudi Arabia demanded a renegotiation of the contract, with the Saudi government wanting 50% of the income from Aramco's oil.
But the Saudi government wouldn't stop there...
Starting in 1973, this de facto OPEC leader began taking ownership of Aramco, starting with a 25% stake.
By 1980, they owned 100% of the oil company.
And Aramco's relationship with the Saudi government is precisely why it's so valuable now...
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Because the Saudi government owns Aramco, the company has exclusive access to all of Saudi Arabia's oil reserves. The country's proven oil reserves are the second largest in the world, with an estimated 265 billion barrels of oil - enough to power every American car, truck, ship, and airliner for the next 36 years - in its control.
Its oil reserves alone make this company worth more than Exxon Mobil Corp. (NYSE: XOM), Royal Dutch Shell Plc. (NYSE: RDS.A), Chevron Corp. (NYSE: CVX), and BP Plc. (NYSE: BP) - combined.
How Much Is Saudi Aramco Worth?
Determining the value of Saudi Aramco's IPO depends on what you look at.
Crunching the numbers based on the straight valuation of a 5% stake in Aramco (and more on the basis of how that is determined in a moment) would bring it in at around $600 billion.
There will be some leveraging since it will also be folded into the already existing Saudi Arabian Public Investment Fund (PIF).
That should bring the total close to $1.4 to $2 trillion.
The missing piece, however, is reserves.
What Are the Real Reserves?
Large oil companies are valued based on how much their oil reserves are worth.
With Aramco, there is just one problem.
No one has seen data on its reserves since the Americans left almost four decades ago.
Now, the Saudi government keeps both the official number of its oil wells and the size of its oil reserves secret for strategic reasons.
But not disclosing this information could prove to be the single-biggest problem this IPO faces.
Fact is, this IPO is destined to fail unless there is a realistic, detailed, and public valuation of the Aramco oil reserve market value.
Is the IPO Dependent on Oil Prices?
Even the Saudis recognize the value of the IPO is dependent upon the value of oil.
As I just mentioned, the company's value, in turn, rests on the value of the reserves.
That means they need to keep the global price of oil as high as possible.
Exactly how high? Here's how I'm reading this situation...
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.
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