Alternate title: No… “The biggest Saudi oil field is [NOT] fading faster than anyone guessed”… Part Deux: Take your disinvestment and shove it where the solar panels don’t function.
Guest post by David Middleton
Aramco Breaks Record As Demand For Its Bond Tops $85 Billion
Davide Barbuscia and Rania El Gamal, Reuters
DUBAI—Orders for Saudi Aramco’s debut international bonds topped $85 billion, a record breaking vote of market confidence for the oil giant despite some investor concerns about government influence over the company.
State-owned Aramco was expected to raise around $10 billion from the deal, which will be priced later on Tuesday and is seen as a gauge of potential investor interest in the Saudi company’s eventual initial public offering.
Before the six-part bond deal was marketed on April 8, Saudi Energy Minister Khalid al-Falih said initial indications of interest for the paper were over $30 billion.
Demand for the paper was the largest for emerging markets bonds since an orderbook value of more than $52 billion for Qatar’s $12 billion bonds last year, and surpasses $67 billion in demand for Saudi Arabia’s inaugural bonds in 2016.
“Purely on figures, it is a fantastic credit, “said Damien Buchet, CIO of the EM Total Return Strategy, Finisterre Capital.
Previously reluctant to do so, Aramco last week opened for the first time its books to investor scrutiny, showing it is by far the most profitable company in the world.
Having made core earnings of $224 billion last year and with $86 billion in free cash flow at the end of 2018, Aramco does not need to borrow.
Many see the deal as a relationship building exercise with international investors ahead of its planned initial public offering, scheduled for last year and then postponed to 2021.
The Aramco bond prospectus noted that Ghawar’s MSC (maximum sustained capacity) was 3.8 million barrels per day (bbl/d) in 2018. Based on Aramco’s definition of MSC, it’s difficult to determine if that is a current value or an average value over the Saudi planning period (which appears to be 50 years). A 2% decline rate, typical of giant oil fields, fits a current MCS of 3.8 million bbl/d. A 1% decline rate fits a long-term average MCS of 3.8 million bbl/d.
People have often asked, “How could Saudi Arabia ever replace Ghawar, the largest oil field in the world?” They already have replaced it… and Ghawar is not “fading faster than anyone guessed.” It’s declining as gracefully as befits the world’s super-giant oil field. Based on past production and current proved reserves, I think the decline rate is probably around 2% (I will explain this in a future post).
If Ghawar has declined to 3.8 million bbl/d, it would now be the second biggest oil field in the world, but only if you consider the Permian Basin as a single oil field (I don’t). What was the old Avis slogan?
Saudi Aramco clearly seems to be trying harder.
Part three of this series will be a more detailed look at Ghawar.