What's Saudi Aramco Worth?
Assessing the valuation and competitive position of this oil giant.
Saudi Aramco, Saudi Arabia’s state-owned oil company, is set to begin trading on the Riyadh stock exchange on Dec. 11. Exclusive rights to produce from nearly all the oil and natural gas reservoirs in the Kingdom of Saudi Arabia gives Aramco access to some of the lowest-cost oil and natural gas reserves globally, bestowing it with an overwhelming cost advantage and earning it a wide moat and stable trend rating, in our view. Our discounted cash flow model values Aramco at $1.4 trillion, or SAR 26 per share, implying a yield of 5.4%, below the initial offer price of $1.7 trillion, or SAR 32 per share.
Saudi Aramco has no close peers, given its size, structure, and cost advantage. With hydrocarbon production of 13.6 million barrels of oil equivalent per day in 2018, 10.3 mmboe/d of which was crude oil, it dwarfs every other public oil and gas company, even including peer national oil companies--those that are largely government owned and typically have preferential access to their country’s resources. Only Russian gas giant Gazprom comes close, but it lacks the oil production.