Could the drone attacks on Saudi Aramco harm its valuation and IPO?

Saudi Aramco's production has been halved following attacks on two major facilities, and analysts say this could impact its valuation

Satellite image via Planet Labs
Satellite image via Planet Labs

The drone attacks targeting major Saudi Aramco plants in Khurais and Abqaiq has rattled regional markets and is likely to impact oil prices, but it could also dent Saudi Aramco's plans for an initial public offering.

"Crown Prince Mohammed bin Salman will push the company to demonstrate that it can effectively tackle terrorism or war challenges," said analysts at Eurasia Group, in a report led by MENA research head, Ayham Kamel. "The attacks could complicate Aramco’s IPO plans."

Yemen's Houthi rebels have claimed responsibility for the latest attacks on Saudi Aramco, which used 10 drones and have ultimately halved Saudi Arabia's production, removing 5.7mn barrels per day, 5% of global supply, off the market.

“The latest attack on Aramco facilities will have only a limited impact on interest in Aramco shares as the first stage of the IPO will be local. The international component of the sale would be more sensitive to geopolitical risks,” the report by Eurasia Group noted.

However, the company's valuation, which might not account for such risk factors, could feel the impact of these attacks.

"Valuing Aramco like Shell or ExxonMobil gets us to about $1.2-1.4trn," said Robin Mills of Qamar Energy. "But that would drop significantly if we apply company-specific risk factors."

Saudi Aramco can soften the impact if it is able to keep customers supplied through its inventories, some analysts say. S&P Global Platts noted in a report that the nation's stockpiles totalled 187.9mn barrels in June 2019, citing the Joint Organisation Data Initiative. "This implies that the kingdom has 26.8 days of cover, assuming zero crude production," the report noted.

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