Saudi Arabia to sell more Aramco shares as OPEC+ ministers meet

Saudi Arabia's state-run energy giant Aramco will sell up to $12 billion in shares June 2, the same day OPEC+ ministers are scheduled to meet and set oil production quotas for the coming months, as the kingdom looks to raise funds for its sweeping -- and increasingly costly -- economic diversification projects.

The Aramco secondary share sale, which follows its initial public offering in late 2019, comes as the company has pivoted its growth strategy away from its bedrock oil business in favor of gas and hydrogen, having canceled in January its plans to hike its crude production capacity from 12 million b/d to 13 million b/d by 2030.

But Saudi Arabia has used proceeds from Aramco's IPO, royalties earned from crude oil sales and hefty dividend payments to help finance Vision 2030, Crown Prince Mohammed bin Salman's signature initiative to reduce the kingdom's dependence on oil revenues, which has provided his half brother, energy minister Prince Abdulaziz bin Salman, ample motivation to bolster slumping crude prices through OPEC+ output cuts.

Under the current OPEC+ accord, Saudi Arabia, the world's largest crude exporter, held its production in recent months to a quota of 9 million b/d -- its lowest levels since mid-2021 -- including a voluntary 1 million b/d output cut that is set to expire at the end of June.

Whether the Saudi cut and those made by other OPEC+ members are extended, rolled back or deepened at the June 2 meeting will determine the trajectory of the market and potentially Aramco's valuation in the months ahead.

Many analysts expect the OPEC+ alliance will maintain their cuts through the end of 2024, as current crude prices are below Saudi Arabia's estimated fiscal breakeven price of $88/b, according to S&P Global Commodity Insights, putting pressure on the kingdom's finances.

Platts, part of Commodity Insights, assessed Dated Brent at $81.19/b on May 30, down from a 2024 peak of more than $93/b in early April, with growing output from the US, Canada, Guyana and other rival non-OPEC+ producers, along with tepid demand indicators, keeping a lid on prices.

"One wonders why now instead of waiting for a higher oil price environment to boost Aramco's valuation," Carole Nakhle, founder of consultancy Crystol Energy, said of the secondary share offering. "However, the decision can still generate significant capital to the Saudi government, especially at a time when oil prices have been stubbornly hovering below the kingdom's fiscal breakeven price, while the government is pursuing ambitious domestic projects."

A source close to the matter said that the date of the share issuance was set three months ago and has no relation to the OPEC+ meeting, which ministers recently shifted from an in-person gathering in Vienna to an online videoconference.

As for the potential impact of any OPEC+ decision on Aramco's share price, the source dismissed concerns and said the company's valuation "is a long-term issue" and is determined by "multiple criteria."

Aramco did not immediately respond to a request for comment.

Market management

Helima Croft, global head of commodity strategy at investment bank RBC, said she expects Saudi Arabia to maintain a tight grip on crude supply going forward and continue to manage the market with its OPEC+ counterparts.

The Saudi government holds about 82% of Aramco shares, while its sovereign wealth fund, the Public Investment Fund, holds another 16%.

"It may certainly bolster the PIF balance sheet, [but] I don't think it will herald the return to a market share war," Croft said of the share issuance, which will be made on the Saudi stock exchange.

Mark Finley, a fellow at Rice University's Baker Institute of Public Policy, said the Aramco sale may indicate that Saudi leaders do not see much more upside in crude prices and may be looking to cash in on the shares lest the oil market falls.

The government has already forecast a budget deficit for this year, while many of Vision 2030's megaprojects, including the $500 billion Neom city in the country's far northwest, which is to be powered by renewable energy and host the world's largest green hydrogen plant, remain largely undeveloped.

The share sale suggests that "they may be losing faith in their ability to quickly increase revenues by boosting oil prices," Finley said.

The shares will be put for sale at Riyal 26.70-29/share, Aramco said in a statement announcing the offering. This is equivalent to $7.12 and $7.73 at the current exchange rate, and at the top of the range, the offering will raise close to $12 billion.

The offering comprises 1.545 billion shares, representing 0.64% of the company's issued shares. The Saudi government will receive all of the net proceeds of the offering, with the final offer price and share allocation to be announced on June 7, it said.

The offering is open to institutional investors in Saudi Arabia, as well as abroad that are qualified to invest in listed securities and retail investors in Saudi Arabia and other Gulf Cooperation Council countries, Aramco said.

The company's IPO in 2019 -- the world's largest -- saw 1.7% of its shares listed on the Saudi stock market, raising $29.4 billion.