- Saudi Arabia’s state-owned oil company, Aramco, has had its access to the kingdom’s oil and gas reserves limited to a 40 year contract.
- Limiting the once evergreen contract was designed to prepare the company for opening to foreign investors and formalise its relationship with the state.
- The new contract was “one of several important steps undertaken to prepare Saudi Aramco for being listed,” the Saudi energy ministry told the Financial Times.
Saudi Arabia has shortened the length of time that its state owned energy company, Saudi Aramco, will have guaranteed access to the kingdom’s oil and gas reserves, as part of preparations for the eventual public listing of Aramco.
The new concession agreement between Aramco and the Saudi Arabian government now places a 40 year limit on the firm’s access to the the kingdom’s oil and gas reserves, where before it had rights in-perpetuity, the Financial Times reported.
But Saudi Aramco will still have the opportunity to renew before the 40 year contract expires.
Three people who had been briefed on the matter told the FT the change was in preparation for the stock market flotation and privatization of the company. Aramco’s flotation was initially scheduled to take place this year, but has now been indefinitely delayed.
Khalid al-Falih, Saudi energy minister and chairman of Saudi Aramco has said there is commitment to listing the company, but despite his comments there are indications that the country is unwilling or unable to currently do so.
The new contract was “one of several important steps undertaken to prepare Saudi Aramco for being listed,” the Saudi energy ministry told the FT, adding the government was committed to “proceeding with the IPO, when conditions are optimum, at a time of its choosing.”
The legal change to the contract was designed to move Aramco towards a formal relationship with the state, before opening the firm up to possible foreign investors, the three sources said.
Following a delay in plans to open the company up to outside investors, the sources said that the move to limit the contract had been a waste of time and means ministerial control of Saudi Aramco has grown, as the company fought against limits to oil and gas access that it once held indefinitely.
The government originally argued for an even shorter contract of 20 years, more in-step with international oil companies, but it was decided this would have consequences for declared energy reserves, long term plans and the valuation of Aramco.
But 40 year contract is longer than most oil companies are able to obtain, and with Aramco still key to Saudi Arabia’s economy there is currently no indication that it wouldn’t be renewed towards the end of the concession.
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