The Biggest IPO In History Worth $2 Trillion-Saudi ARAMCO
For years, Saudi Arabia has been preparing itself for the biggest IPO ever on the stock market. When the largest company in the world by revenue finally did go public in September 2014, the oil giant was evaluated at a whopping $2 trillion. Who knew a country that was filled with miles of dunes would hit the largest IPO listing in history. As many reserves as the land have today, at one point they had to drill 7 wells in a span of 3 years just to discover something valuable.
The search for oil in Saudi Arabia began in the 1920s when Ibn Saud- the first monarch and the founder of Saudi Arabia awarded a concession to Holmes- a British-New Zealander mining engineer to explore the country for oil. Holmes was to pay an annual fee of £2,500. But after years of work, Holmes couldn’t find any sign of oil, so he went to Bahrain.
Later in 1932 Francis Loomis, wrote a letter to Philby, a friend of Ibn Saud, to seek his help in obtaining an oil concession in Saudi Arabia. On February 20, 1933, a team from America arrived in Jeddah on a ship. Philby, being a friend of the King’s looked for ways to find a better deal, so he contacted the Anglo-Persian to send a negotiator for an oil bid. Their negotiator was only authorized to pay £6,000 for the concession. The American’s were willing to pay more and agreed that they would pay £35,000 in gold upfront, the second loan of £20,000 after eighteen months, and a rental fee of £5,000 a year. The concession was valid for 60 years. It was signed on May 29, 1933, by L.N. Hamilton and Saudi finance minister Abdullah al-Sulaiman al-Hamdan.
And so a team of financiers, adventurers, and engineers took their first step of bringing Standard Oil Company of California, into the Middle East. After months of mapping and locating area using airplanes, the team decided to drill their first well in a location today knows as Dammam
The drilling for the first well started on April 30, 1935. The first hole was been drilled using a Chinese technique, known as the cable tool method, three workers worked around the clock drilling day and night, but by December there was no sign of oil; the drilling was stopped at a depth of 976 m.
The team decided to drill another site, Dammam 2, work started in February 1936, initially, location 2 was showing good signs by producing 3,840 barrels a day, but later in the year the oil discovered was no more than 225 liters a year. Location 3 started in mid-July but couldn’t produce more than 100 barrels a day. #4 and #5 were dug 700 and 630 meters deep with no promising results. #6 was lagging behind because of the rush of work on the other wells. Then on December 7, 1936, they drilled the deepest hole, sadly after two weeks of drilling Dammam #7 blew out, and a jet of gas sent the rig high in the air. The team continued and pushed on, digging a hole that was 3,300 FT. On March 4, 1938, nearly three years after Dammam #1, 1585 barrels of oil started to come out from Dammam #7. In three days the flow went to an astonishing rate of 3,690 barrels a day.
The oil kept coming out, a plan was made to transport oil from fields to the port, Port of Ras Tanura, to send oil out to other countries.
A 63 km pipeline was layout out that took about a year and on May 1, 1939, King Abdul Aziz Ibn Saud visited the Port to turn a valve. The oil from Saudi was about to flow in the world, changing the countries future. Knowing that there could possibly be a lot more oil, later in May, the Americans signed an agreement with the King, extending the concession to 1.14 million SQ KM. The King in return asked for £140,000 in gold, a rental fee of £25,000 a year, and a promise of £100,000 if new oil field were discovered. By the end of 1939, Saudi’s oil export amounted to a whopping 521,000 tons.
But then the world was at War, oil was precious than ever, without oil, the War can not be won. Nations were using oil to lay down their runways, oil was used in trucks, tanks, airplane. The armies started targeting, refineries, fuel factories, storage depots in order to ensure that the other side either ran out of oil or had to give it up. The production of oil in Saudi halted, to avoid German occupation of the oil fields. Seeing that the production was halted and knowing that the land is filled with oil, ExxonMobil started making deals with Saudi Arabian Oil Company that was now known as
Aramco: Arabian American Oil Company
In order to secure fair and stable prices for petroleum, OPEC was founded in 1960. Five countries became the Founder Members of the Organization; Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Saudi Arabia and several other oil-producing countries began nationalizing their natural resources. And by 1980, the Saudi government had completely buyout Aramco’s assets, making Aramco, Saudi Aramco.
Fast forward, in 2004, Aramco was producing 8.6 million barrels per day, the following year they increase their capacity to 12.5. The same year, they became the world’s largest company with an estimated market value of $781 billion. In 2008, Aramco announced it would increase production to 9.7. In 2011, Saudi Aramco was drilling more than 71 million barrels per day.
In 2018, Crown Prince Mohammed bin Salman announced a plan to offer 5% of Aramco at the stock exchange. The plan was announced with a goal of welcoming investments from outside and with a vision to take Saudi away from oil dependency by introducing the county to other economic sectors. The plan to take a portion of the company public kept getting delayed. On 14 September 2019, there was a drone attack on two Saudi Aramco plants: The attack cut Saudi Aramco's capability by 5.7 million barrels per day, over 5 percent of the world’s supply. But the company finally did go public, offering 1.5% of the company’s value to the stock. And on 11 December 2019, offered their initial public offering on the Tadawul stock exchange.
The shares rose to 35.2 riyals, giving it a market capitalization of about $1.88 trillion, and surpassed the $2 trillion mark on the second day of trading. Making it the largest IPO in history.
What the future holds for Aramco is yet to be seen, with a company controlling 17% of the world’s oil reserves, with the cheapest lifting cost
(oil at the surface) of about $4, with operational wells from 1936, Saudi Aramco’s future seems bright.
