(For the latest on this topic, see “More Thoughts on the Value of Saudi Aramco”.)
In the Financial Times last Friday the claim was made (FT subscription required) that Saudi Aramco has a value of close to $7 trillion, which would make it more than 20 times as valuable as ExxonMobil, the largest U.S. company, and about one-third the size of the entire U.S. stock market. This is incredible – the question is whether or not it is true.
Determining the hypothetical market capitalization of Saudi Aramco is somewhat difficult because it is completely state-owned, and thus has expenditures that may not be related to its profit-making mission. So to put a bit of structure on this problem, let’s do the following thought experiment: Suppose that Saudi Aramco does what Petrobras, the Brazilian national oil company, did in the late 1990s when it was partially privatized and sold about half of its shares on the public markets. The Petrobras experiment was tremendously successful; Saudi Aramco as a company, and the Saudi Arabian economy, would probably benefit from a partial privatization of Saudi Aramco. Unfortunately, I don’t see this happening any time in the near future.
Major Oil Companies and Their Market Cap and Oil Reserves
| Market Capitalization | Proven Reserves (BOE) | |
| ExxonMobil | $306 B | 22.8 B |
| Petrochina | $350 B | 20.5 B |
| BP | $166 B | 18.0 B |
| Shell | $160 B | 11.9 B |
| Chevron | $143 B | 11.9 B |
| Petrobras | $200 B | 14.8 B |
The question I have is the following–let’s suppose that Saudi Aramco partially privatizes, sells off 10% of the company on the public markets, and starts to run the company like a private company like Petrobras did. What do you think that 10% stake would be worth? The Financial Times is suggesting that the stake would be worth $700 Billion. I think it would be worth substantially less.
What do you think?
About Sheridan
Sheridan Titman is a professor of finance at The University of Texas at Austin and a research associate of the National Bureau of Economic Research. He was recently elected Vice President of the American Finance Association and is incoming President in 2012. He is also the Executive Director of the Energy Management and Innovation Center (EMIC) at The University of Texas at Austin.Learn more about Sheridan's research.
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February 12, 2010 at 8:23 am
I think the real question is what Saudi Aramco’s enterprise value would be, not their market capitalization (equity value), because this question provides no information on the debt capitalization of the company.
If Saudi Aramco has 11.5x as many proven reserves as XOM (264 vs. 22.8), then they should have an enterprise value somewhere near 11.5x as high as XOM before adjusting for political risk (discount) or economies of scale (premium), among other factors.
February 19, 2010 at 10:40 am
If the company is really worth that, then this would be interesting on how it actually plays out. I think if the company was to go fully public the market would be very happy