Saudi Arabia Still Dreams of Taking Its Oil Company Public

LONDON — Two years ago, Crown Prince Mohammed bin Salman of Saudi Arabia delivered a stunning pronouncement: He would take his kingdom’s treasured oil company, Saudi Aramco, public at a $2 trillion valuation by 2018. The windfall from the initial public offering would help radically transform one of the world’s top petrostates.

“Within 20 years, we will be an economy or state that doesn’t depend mainly on oil,” the prince told Bloomberg News at the time.

It was a bold move that was meant to support Vision 2030, Salman’s plan for the Saudi Arabia of tomorrow. Proceeds from the offering would help build a $500 billion megacity that would run on clean energy, create a $200 billion solar power project and allow Saudi Arabia to become one of the world’s biggest technology investors.

Yet those dreams are largely deferred for now, as the sheer complexity of pulling off the world’s biggest-ever IPO has bedeviled the plans.

For now, Saudi Aramco will remain private. And while the kingdom has turned to a patchwork of other solutions to replace the proceeds from the stock sale, its ambitions may have to wait.

“In the Gulf, there’s a history of a head of state making some dramatic pronouncement that gets a lot of coverage in the press, then quietly rolling it back in months or years,” said Jim Krane, a fellow at the Baker Institute at Rice University.

Referring to Salman, he added, “I think he got ahead of himself.”

Last week, in an interview with Bloomberg News, Salman said the IPO would happen by 2021.

Bringing Saudi Aramco to the public markets was always going to be a gargantuan task. Founded in 1933, it is the world’s biggest petroleum producer, overseeing the two largest oil fields ever discovered. It claimed last year to have reserves equivalent to nearly 333 billion barrels of oil; by comparison, Exxon Mobil said it had 21.2 billion.

Profits from that oil empire have underpinned the Saudi economy for decades. But Salman wanted to wean the kingdom off its dependence on oil, particularly as consumers around the world move toward renewable sources of energy.

To do that, he settled on selling a fraction of Saudi Aramco’s stock on the public markets and transferring ownership the company to the kingdom’s sovereign wealth fund, instantly making it one of the biggest in the world. Given the Saudi’s belief that Saudi Aramco could be valued at $2 trillion in an IPO, selling just 5 percent of its shares would raise an astounding $100 billion.

Well ahead of the planned initial offering, Salman directed his ministers to begin pouring money into new ventures around the world. The kingdom committed $45 billion to the Vision Fund, the technology investment fund run by SoftBank, and $20 billion to the Blackstone Group’s new infrastructure investment fund.

Even grander ambitions soon followed. At a gathering of business magnates in Riyadh last year — dubbed by some attendees as “Davos in the desert” — Salman announced his idea for a $500 billion city, Neom, to showcase life in the future and to be staffed by robots.

Saudi officials also agreed to work with SoftBank on what they said would be the world’s biggest solar-power project, harnessing the country’s abundant sunshine.

But as Salman’s aspirations grew, the Saudi Aramco initial offering faced a number of thorny issues.

Oil industry executives said Salman’s proposed $2 trillion market value was too high. That meant the kingdom might raise far less money than initially hoped.

Taking Saudi Aramco public also would subject the company to far greater scrutiny and shed more light into the financial health of the kingdom. That could have reduced the Saudi government’s leverage over trading partners.

Oil prices also have risen — from below $30 a barrel when Salman first floated the idea of an IPO to well over $80 a barrel now — reducing the need for such a stock sale.

Kingdom officials insist that the oil giant will go public, just not on the previously announced schedule.

“The government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum,” Khalid al-Falih, the Saudi energy minister and the company’s chairman, said in late August.

Some other lofty development projects appear to have stalled as well. The Wall Street Journal reported that the SoftBank solar project had been postponed, although Saudi officials denied that was the case.

For now, the Saudi government is orchestrating other moves to raise money. Saudi Aramco is buying a majority stake in Sabic, a huge Saudi chemical producer, from the country’s sovereign wealth fund. That could put as much as $70 billion in the Saudi fund’s coffers. Saudi Aramco said that the deal made strategic sense, providing another use for its oil as clean-energy use grows.

The sovereign fund said in September that it had borrowed $11 billion from banks.

Saudi Aramco may yet sell a stake in itself. The oil producer could take on a strategic investor, with analysts pointing to huge Chinese industrial customers as potential candidates.

All told, the kingdom could raise as much money through these efforts as it could have through a Saudi Aramco public offering. And perhaps it will complete all the world-transforming projects that it has proposed. But all that is less certain now than it was before.