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Saudi Aramco laying groundwork for IPO with bond announcement, reserve estimate

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Saudi Aramco laying groundwork for IPO with bond announcement, reserve estimate

The proposed IPO of stock in Saudi Arabian Oil Co., which has been through a series of hurdles and delays, inched closer to market as the massive state-owned oil producer intends to issue commercial bonds for the first time and released its first reserve estimates in decades.

The bonds, the amount of which has not been disclosed, would be used to fund Saudi Aramco's $70 billion acquisition of Saudi petrochemical company Sabic. It would also have another consequence: requiring the company to publicly disclose its accounting practices for the first time since it was nationalized in the 1980s.

"We believe that having bonds and commercial paper as one of its sources of capital is prudent and necessary," Saudi Minister of Energy, Industry and Mineral Resources Khalid al-Falih said Jan. 9. That is a break with precedent for the Saudis, who have historically funded their projects internally.

With the bond issuance, which al-Falih said would likely be priced in U.S. dollars, the Aramco IPO is now planned for 2021. Numerous issues still need to be ironed out, including how much of the company would be up for public purchase and where it will be listed, but Crown Prince Mohammed bin Salman has signaled that he is intent on seeing the process through. The IPO was originally scheduled for the second half of 2018.

The Saudis took another important step toward the IPO on Jan. 9 with an announcement of Aramco's estimated proved oil and gas reserves, a requirement for public listing. The kingdom, in conjunction with consulting firm DeGolyer & MacNaughton, said it had estimated reserves of 266.3 billion barrels of oil and 307.9 Tcf of natural gas Dec. 31, 2017. Of that amount, Aramco controls an estimated 260.9 billion barrels of oil and 302.3 Tcf of gas.

"This certification underscores why every barrel we produce is the most profitable in the world, and why we believe Saudi Aramco is the world's most valuable company and indeed the world's most important," al-Falih said.