What Happened: Saudi Arabia is continuing to prepare its formal initial public offering announcement, which could happen as early as the Future Investment Initiative conference later in October, The Financial Times reported Sept. 30. Riyadh will amend its per-barrel royalty structure starting in January 2020, the Saudi Arabian Oil Co. also announced, along with a $75 billion annual dividend for the next five years and plans to scale back its global investment plans.
Why It Matters: The new changes alone are unlikely to boost Saudi Aramco's valuation all the way to $2 trillion, but suggest Saudi Arabia may be planning for prices to remain below $70 per barrel indefinitely. Saudi Arabia is also considering cutting its income tax rate for the company, which is currently 50 percent. In order to reach its targeted valuation, it may need to cut the tax rate by as much as 10 to 20 percentage points.
Context: The changes could lead to significant reductions in the annual payments Saudi Aramco makes to the government. In 2018, its net income to shareholders was $111 billion, and dividends, taxes and royalties to the government totaled about $160 billion. Crown Prince Mohammed bin Salman is hoping that the tax and royalty cuts and high annual dividend, some of which would go to the government regardless, will be offset by higher revenue in the long term from the public investment fund and the jobs that the fund creates.
- Saudi Oil Infrastructure Offers a Target-Rich Environment for Iran (Sept. 19, 2019)
- Attacks Deal a Blow to Saudi Aramco's Prospects (Sept. 16, 2019)
- Will Saudi Aramco Fall Prey to a Prince's Politics? (Jan. 3, 2018)