LONDON (Reuters) - Saudi Arabia’s policy of keeping a vast amount of oil production capacity unused is a possible complication in any listing of the upstream part of state oil firm Aramco, industry sources said.
Saudi Arabia holds the world’s only significant amount of spare oil capacity, which it has tapped to fill shortages caused by outages and conflicts such as the 2011 war in Libya, or to calm price spikes.
But including all of Aramco in a listed entity, alongside other publicly traded companies that do not keep oil production off the market for strategic reasons, would make it harder to fulfill this role.
“Aramco has carried for many years as a government policy 1.5 to 2 million barrels per day of spare capacity to be turned on at short notice. No commercial company would do that unless they were paid a fee,” said a source familiar with the matter.
“So there are a few complexities,” he said of the possible listing. “What the outcome will be I don’t know, but I suspect it will be more related to the downstream.”
Aramco, which is headquartered in Dhahran, did not respond to an emailed request for comment.
An analyst who covers international listed oil companies agreed with the source’s view.
“Including upstream oil in a listing would be nigh-on impossible,” the analyst said, declining to be identified. “The spare capacity is a benevolence that is not commensurate with what investors would want a listed company to be doing.”
Saudi Deputy Crown Prince Mohammed bin Salman said in an interview with The Economist earlier this month that Saudi Arabia might sell shares in Aramco as part of a privatization drive to raise money in an era of low oil prices.
Before that interview appeared, any listing of the oil-producing side of Aramco had not been discussed in great detail internally, the source familiar with the matter said.
“Privatization of parts of the downstream has been discussed for quite a while. Although there has been mention recently of something with the upstream, it was really not under serious consideration,” he said. “I think there are going to be some months of discussion.”
Saudi Arabia produced 10.14 million barrels per day (bpd) of oil in December and held another 2.12 million bpd in reserve, according to the International Energy Agency - the lion’s share of the 2.38 million bpd of unused capacity held by the Organization of the Petroleum Exporting Countries.
Aramco has crude reserves of about 265 billion barrels, over 15 percent of all global deposits. The Saudi government will keep a controlling interest if it decides on a share offering, its chief executive Amin Nasser said.
The company’s chairman, Khalid al-Falih, was quoted by the Wall Street Journal on Jan. 11 as saying there was no specific timeline on the listing, which could include upstream and downstream assets.
Editing by Dale Hudson
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