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World's Largest IPO At Risk Following Drone Strikes

IPO At Risk

The weekend attacks on key oil infrastructure in Saudi Arabia have investors anxious as the Kingdom has just accelerated plans to list Saudi Aramco in what would be the world’s largest initial public offering (IPO) ever.

Despite the world-class assets and the fact that Saudi Aramco pumped just below 10 million bpd before the attacks—or more than the world’s top four listed oil companies combined—financial analysts and investors tell Bloomberg that the valuation of the company may not fully account for major supply disruptions like the current one.  

“They are the best assets in the world but I have no interest in owning Aramco given the security risks,” Ben Cleary, Asia chief executive officer at Tribeca Investment Partners Pty, told Bloomberg, noting that the geopolitical risks in the Persian Gulf and risks of more attacks on critical Saudi oil infrastructure wouldn’t go away anytime soon.

On Saturday, the Abqaiq facility and the Khurais oil field in Saudi Arabia were hit by attacks, which resulted in the suspension of more than half of Saudi Arabia’s oil production.

Terrorist attacks with projectiles resulted in production suspension of 5.7 million barrels of crude oil per day, Saudi Aramco said on Saturday, confirming the loss of more than half of the Kingdom’s oil production.

Oil prices shot up on Monday after markets reopened following the attacks, while analysts say that the price movement in the next few days will be determined by how fast and how much of the oil production Aramco can restore.

According to analysts, the longer the timeline for Aramco to restore crude oil production, the more bullish this will be for the price of oil. Ironically, Saudi Arabia needs around $80 a barrel Brent Crude to rebalance its budget and a fairly high oil price to get as high a valuation for Aramco in the IPO as it can.

By Tsvetana Paraskova for Oilprice.com

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