Saudi Aramco loses unlimited access to oil reserves

Saudi
Aramco Chief Executive Officer Khalid al-Falih speaks to the
media at the company’s booth during Petrotech 2014, a
petrochemicals conference, at the Bahrain International
Exhibition Centre in Manama May 19, 2014.
REUTERS/Hamad I Mohammed

• Saudi Arabia’s state-owned oil company, Aramco, has had
  its access to the kingdom’s oil and gas reserves limited to a
  40 year contract.
• Limiting the once evergreen contract was to prepare the
  company for opening it to foreign investors and formalize its
  relationship with the state.
• The new contract was “one of several important steps
  undertaken to prepare Saudi Aramco for being listed,” the Saudi
  energy ministry told the Financial Times.

Saudi Arabia has shortened the length of time that its state
owned energy company, Saudi Aramco, will have guaranteed access
to the kingdom’s oil and gas reserves, as part of preparations
for the eventual public listing of Aramco.

The new concession agreement between Aramco and the Saudi Arabian
government now places a 40 year limit on the firm’s access to the
the kingdom’s oil and gas reserves, where before it had rights
in-perpetuity,
the Financial Times reported. 

But Saudi Aramco will still have the opportunity to renew before
the 40 year contract expires.

Three people who had been briefed on the matter told the FT the
change was in preparation for the stock market flotation and
privatization of the company. Aramco’s flotation was initially
scheduled to take place this year, but has now been indefinitely
delayed.

Khalid al-Falih, Saudi energy minister and chairman of
 Saudi Aramco has said there is commitment to listing the
company, but despite his comments there are indications that the
country is unwilling or unable to currently do so.

The new contract was “one of several important steps undertaken
to prepare Saudi Aramco for being listed,” the Saudi energy
ministry told the FT, adding the government was committed to
“proceeding with the IPO, when conditions are optimum, at a time
of its choosing.”

The legal change to the contract was designed to move Aramco
towards a formal relationship with the state, before opening the
firm up to possible foreign investors, the three sources
said. 

Following a delay in plans to open the company up to outside
investors, the sources said that the move to limit the contract
had been a waste of time and means ministerial control of Saudi
Aramco has grown, as the company fought against limits to oil and
gas access that it once held indefinitely.

The government originally argued for an even shorter contract of
20 years, more in-step with international oil companies, but it
was decided this would have consequences for declared energy
reserves, long term plans and the valuation of Aramco.

But 40 year contract is longer than most oil companies are able
to obtain, and with Aramco still key to Saudi Arabia’s economy
there is currently no indication that it wouldn’t be renewed
towards the end of the concession.

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