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Energy Journal
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Summer Is Over: Aramco Listing Plans Speed Up
It’s IPO crunch time. Saudi officials and Aramco executives are meeting this week with bankers pitching how best to finally sell off a chunk of the giant state-owned oil company to the public. And they’re doing so under new leadership. Late Monday, Aramco replaced its chairman—removing Energy Minister Khalid al-Falih and naming sovereign-wealth boss Yasir al-Rumayyan.
The coming months are pivotal for the recently revived IPO plans. The Journal broke the news last week that Aramco is now considering a two-part listing that would start with the company floating shares on the Saudi domestic stock market sometime before the end of the year.
Timing isn’t perfect. Relatively low oil prices are slowing the Saudi economy, hurting the kingdom’s push for foreign investment and threatening to crimp the valuation of the Aramco debut, report Rory Jones and David Hodari.
Crown Prince Mohammed Bin Salman has long held out hope of Aramco receiving a valuation of around $2 trillion in any listing. For the company to be valued anywhere near that amount, though, analysts project the price of oil needs to rise much higher than its current $60-per-barrel range.
— John Simons, London Energy Editor
Reach me at john.simons@wsj.com, or on Twitter @thinksimons.
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Iranian President Hassan Rouhani at a public ceremony in Tehran last month. PHOTO: OFFICE OF THE IRANIAN PRESIDENT/REUTERS.
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• Iran has given European countries until Friday to provide relief from crippling U.S. sanctions. Without relief, Tehran is threatening to announce new steps to suspend its adherence to some conditions of its nuclear deal.
• OPEC releases its monthly oil markets report next Wednesday, Sept. 11. The group then hosts a monitoring committee meeting in Abu Dhabi the following day.
• Abu Dhabi is also playing host to the World Energy Congress next week, between Sept. 9-12. Russian Energy Minister Alexander Novak and U.S. Deputy Energy Secretary Dan Brouillette are expected to attend.
• The International Energy Agency releases its monthly oil sector report on Thursday, Sept. 12.
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Oil prices were down on Tuesday, with the U.S. dollar remaining strong amid persistent trade tensions and fears around the global economy.
Brent was trading down 1% at $58.07 a barrel on London’s Intercontinental Exchange. WTI futures were down 1.5% at $54.28 a barrel on the New York Mercantile Exchange.
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“If you lifted all the sanctions, bowed respectfully to the Iranian nation, well then, the conditions are different.”
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— Iran’s President Hassan Rouhani, rejecting the possibility of meeting with President Trump.
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Saudi Arabia’s state oil giant, known as Aramco, revived plans to sell 5% of its stock in an initial public offering earlier this month. PHOTO: AHMED JADALLAH/REUTERS
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Aramco Proposes Two-Stage IPO, Shunning London, Hong Kong
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Aramco is considering a plan to split the world’s largest IPO into two stages, offering a portion of its shares on the Saudi stock exchange later this year and following up with an international offering in 2020 or 2021, according to advisers and officials familiar with the plans.
The company is leaning toward Tokyo as the venue for the second phase of its proposed plan, these people said, as political uncertainty in the U.K. and China reduces the appeal of markets in London and Hong Kong, write Summer Said, Benoit Faucon, Ben Dummett and Julie Steinberg.
Meanwhile, Saudi Arabia is removing Energy Minister Khalid al-Falih as chairman of its state-owned oil giant, a surprise shift as plans for an initial public offering accelerate. The move, according to people familiar with it, is intended to further separate the powerful Saudi energy ministry from the governance of Saudi Aramco.
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Video: Saudi Aramco’s Path to the World’s Largest IPO
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What does the road to an IPO look like for the world’s most profitable company? After repeated delays, Saudi Aramco has revived plans for what would be the biggest-ever IPO.
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But hurdles remain for the state-owned energy company.
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BP Is Exiting Alaska With $5.6 Billion Sale
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The energy giant is exiting Alaska after six decades, marking the latest blow to the state’s oil industry, which has been eclipsed by the rise of shale drilling in the continental U.S, write Miguel Bustillo and Bradley Olson.
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The British oil company is selling all of its Alaska assets, including its share of the giant Prudhoe Bay oil field and its interests in the Trans-Alaska Pipeline System, to Hilcorp Energy for $5.6 billion. Privately held Hilcorp, based in Houston, is Alaska’s largest private operator.
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U.S. Glut in Natural-Gas Helps Depress Global Prices
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U.S. shale companies are exporting more gas than ever. Unfortunately for the country’s beleaguered natural-gas producers, global prices for the fuel have never been lower, writes the Journal’s Ryan Dezember.
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New York Times Drops Sponsorship of Oil Conference
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The New York Times ended its sponsorship of the Oil & Money conference after a decadeslong relationship with the event, citing concerns over climate change and the newspaper's expanding coverage of the topic.
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• How Elon Musk gambled Tesla to save SolarCity. (Vanity Fair)
• An economics professor sketches out a post-fossil-fuels electricity grid. (The Conversation)
• Democratic presidential candidate Andrew Yang’s climate plan is perhaps the most aggressive in a crowded field, and includes moving people to higher ground. (Vox)
• A Russian ship sailing towards the Arctic with two nuclear reactors onboard has been dubbed ‘floating Chernobyl’ by activists who say the project poses a risk to the environment. (Popular Mechanics)
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830,000
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That’s roughly how many barrels of crude the Keystone XL pipeline—if completed—would carry each day from Canada’s Alberta province through Montana and South Dakota to Nebraska. The Nebraska Supreme Court recently upheld the state’s approval of the pipeline, write Christopher M. Matthews and Vipal Monga.
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Reporter’s Notebook: More Consolidation and Bigger Profit in the U.S. Shale Industry
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Have investors found the kind of merger they like in the U.S. shale patch? The Journal’s Luis Garcia explores.
I was puzzled by investors’ positive reaction to the news last week that PDC Energy had agreed to acquire SRC Energy—a move to combine two shale producers.
I knew they had been calling for consolidation. Fresh in my memory, however, was Callon Petroleum. Its share price plunged in July after disclosing plans to acquire Carrizo Oil & Gas. Concho Resources felt similar pressure last year with its decision to buy RSP Permian.
What was different this time? It was essentially about the deal’s premium, or in the case of PDC-SRC, the lack of one.
Shale companies have little appetite today for acquisitions that could appear to stray from the capital discipline investors are demanding.
“The buying enthusiasm just isn't there,” said Andrew Dittmar, a senior analyst at energy-data provider Enverus. A seller can’t really cash out, he says: “You're just combining yourself into a larger company, and you're hoping that you're going to reap the benefits.”
Investors would only support mergers they can clearly see as leading to bigger profits. By adding SRC’s fields in Colorado’s Denver-Julesburg basin to its own, PDC could achieve the gains of scale and cost reductions that investors are longing for, Mr. Dittmar said.
“You have two very similar companies with similar valuation and yet you're running duplicated corporate overhead, you're competing with each other for services, for pipeline takeaway” capacity, he said.
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Q&A: Citgo Petroleum Manages U.S. Sanctions on Venezuela
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Citgo Petroleum, a U.S. subsidiary of Venezuela’s state-owned oil giant, Petróleos de Venezuela, recently tapped Carlos Jordá as its new chief executive.
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The refiner is a key asset for Venezuela and at the center of U.S. efforts to oust the country’s authoritarian president, Nicolás Maduro.
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It was a major customer of crude from Venezuela before the U.S. imposed sanctions in January that shut down oil trading between the countries.
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In an interview with the Journal’s Rebecca Elliott, Mr. Jordá and Citgo Chairwoman Luisa Palacios discussed how U.S. sanctions on Venezuela have affected the company’s operations. Edited excerpts:
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Q:
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How has losing access to Venezuelan crude affected Citgo’s refineries financially and operationally?
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A:
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Mr. Jordá: We’re buying a considerable amount of crude oil from Colombia. We’re already a big buyer of crude oil from Canada because our Lemont [Illinois] refinery primarily runs on Canadian crudes. We have bought Mexican crude, Trinidad, Brazil. And a lot of crude oil from the U.S. given that actually the light-heavy differential has not been as wide as in the past.
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Q:
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You mentioned that you hope to be able to import crude from Venezuela again soon. Can you share any insight you have?
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A:
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Mr. Jordá: That would depend really on a change in administration in Venezuela, which would allow for lifting of sanctions, and of course, Venezuela’s oil industry will have to recover. But I’m optimistic that that will someday happen, and Citgo will be there to be able to process the oil for which it has really been designed.
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Q:
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What has Citgo been doing with the dividends it normally would have been sending back to Venezuela?
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A:
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Ms. Palacios: Citgo has been keeping its liquidity for its own use. As you know, there are still things preventing dividends, not only the sanctions, but the fact that our debt covenants have very clear debt ratios that we have to comply with.
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We want to be your first energy read of the week. This newsletter is a production of the global WSJ energy team, which is made up of a dozen editors and reporters in Houston, New York, London and Dubai. Send feedback to John Simons and Neanda Salvaterra at EnergyJournal@wsj.com.
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