Trillion-dollar question looms as Aramco audits oil reserves
When Saudi Aramco reveals a Western audit of its oil reserves, investors will be looking for two answers: How much oil and how much detail?
Saudi Energy Minister Khalid al-Falih has hinted at a surprise on the upside on reserve volumes ahead of Aramco's 2018 share listing, but industry sources say detail on individual deposits which investors have long sought will be thin.
Saudi Arabia's reserves of easily recoverable oil have long been the world's largest.
But there also have long been questions about the volume and quality of those reserves. For nearly 30 years despite rising production, wild swings in oil prices and improved technology Riyadh has annually reported the same number for reserves of 261 billion barrels, according to BP's statistical review.
Firms listing in New York are required to have a U.S. Securities and Exchange Commission audit. Last year, the SEC launched a probe into why the world's largest listed oil company , ExxonMobil reported virtually unchanged reserves for years despite a plunge in prices.
Exxon revised its reserves down last month.
Having an internationally recognized reserves audit has become a key task for Aramco as it seeks to become the world's most valuable company when it lists shares in an initial public offering (IPO) for 5 percent of the firm's value.
An industry source told Reuters that Aramco aimed to have one of its two reserves auditors wrap up the review this year, long before the share listing.
Dallas-based DeGolyer and MacNaughton, and Gaffney , Cline and Associates, part of Baker Hughes (BHI.N), are involved in the auditing, sources have said.
When the reserves are confirmed by the auditors, the results are likely to be similar to the levels of disclosure by international peers such as BP BP.L.and Royal DutchShell, sources familiar with the process said.
“What Aramco will do in the IPO is try to report in a similar way to other companies,“ a senior source with knowledge of the plans said.
Listed majors' reserves reports “vary a bit in detail and some give a greater breakdown. Aramco probably hasn't decided that yet,“ the source said.
Over a decade ago, Shell's stock price collapsed after the company said it had overstated its reserves by 20 percent. No listed oil major has seen its stated deposits stay unchanged for the past 30 years.
Aramco declined to comment. “Saudi Aramco does not comment on rumor or speculation,“ a company spokesman said. Gaffney , Cline and Associates also declined to comment.
A reserves total that is significantly above or below the 261 billion figure is likely to affect Aramco's potential value. Earlier phases of the audit have supported Aramco's statements on the total size of deposits.
Aramco is showing all its data to the auditors, the sources said, and is using two firms rather than one in an effort to bolster confidence that the process is not a rubber-stamping of Aramco figures. “Our reserves have been partially audited and are bigger than we actually booked,“ Falih said this week.
On every metric, Aramco will surprise analysts on the upside lowest cost, highest cash flow, solid reserves that will be certified by third-party agencies.
Saudi Energy Minister Khalid al-Falih has hinted at a surprise on the upside on reserve volumes ahead of Aramco's 2018 share listing, but industry sources say detail on individual deposits which investors have long sought will be thin.
Saudi Arabia's reserves of easily recoverable oil have long been the world's largest.
But there also have long been questions about the volume and quality of those reserves. For nearly 30 years despite rising production, wild swings in oil prices and improved technology Riyadh has annually reported the same number for reserves of 261 billion barrels, according to BP's statistical review.
Firms listing in New York are required to have a U.S. Securities and Exchange Commission audit. Last year, the SEC launched a probe into why the world's largest listed oil company , ExxonMobil reported virtually unchanged reserves for years despite a plunge in prices.
Exxon revised its reserves down last month.
Having an internationally recognized reserves audit has become a key task for Aramco as it seeks to become the world's most valuable company when it lists shares in an initial public offering (IPO) for 5 percent of the firm's value.
An industry source told Reuters that Aramco aimed to have one of its two reserves auditors wrap up the review this year, long before the share listing.
Dallas-based DeGolyer and MacNaughton, and Gaffney , Cline and Associates, part of Baker Hughes (BHI.N), are involved in the auditing, sources have said.
When the reserves are confirmed by the auditors, the results are likely to be similar to the levels of disclosure by international peers such as BP BP.L.and Royal DutchShell, sources familiar with the process said.
“What Aramco will do in the IPO is try to report in a similar way to other companies,“ a senior source with knowledge of the plans said.
Listed majors' reserves reports “vary a bit in detail and some give a greater breakdown. Aramco probably hasn't decided that yet,“ the source said.
Over a decade ago, Shell's stock price collapsed after the company said it had overstated its reserves by 20 percent. No listed oil major has seen its stated deposits stay unchanged for the past 30 years.
Aramco declined to comment. “Saudi Aramco does not comment on rumor or speculation,“ a company spokesman said. Gaffney , Cline and Associates also declined to comment.
A reserves total that is significantly above or below the 261 billion figure is likely to affect Aramco's potential value. Earlier phases of the audit have supported Aramco's statements on the total size of deposits.
Aramco is showing all its data to the auditors, the sources said, and is using two firms rather than one in an effort to bolster confidence that the process is not a rubber-stamping of Aramco figures. “Our reserves have been partially audited and are bigger than we actually booked,“ Falih said this week.
On every metric, Aramco will surprise analysts on the upside lowest cost, highest cash flow, solid reserves that will be certified by third-party agencies.
