Aramco Hires Reserves Auditor Ahead of IPO

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Saudi Aramco has hired a third-party auditor to evaluate its hydrocarbon reserves for the first time ahead of its planned initial public offering (IPO) in 2018, industry sources familiar with the matter told Oil Daily on Thursday, identifying the firm appointed as UK-based Gaffney, Cline and Associates. Saudi Arabia has long been secretive over details of its hydrocarbon wealth, which state-run Aramco itself puts at 260 billion barrels of proved crude oil reserves and 253 trillion cubic feet (7.17 trillion cubic meters) of gas reserves. But as the Saudi leadership looks to list 5% of Aramco in the second half of next year, some level of independent auditing is required, especially by stock exchanges in New York or London (WEO Dec.20'16). "Saudi Aramco does not comment on rumor or speculation," a company spokesman said in an email when asked about the appointment. No one from Gaffney, Cline, a subsidiary of US services firm Baker Hughes, was available to comment. The sources said that Gaffney, Cline would not be conducting a full reservoir check for the entire country as that would require an extensive amount of time and resources that no auditor could complete in the given time frame. Reserves disclosure remains a key stumbling block in the Aramco IPO. "The listing is based on Saudi Aramco maintaining the concession," Aramco CEO Amin Nasser told Bloomberg last week, referring to the exclusive rights the company has held to produce oil in Saudi Arabia for 80 years. "If you have the concession, you have the physical oil," he added. This method suggests investors might be able to book the reserves in their accounts but will not have direct ownership of the physical barrels. Relinquishing state ownership of the reserves may draw a domestic backlash in Saudi Arabia. On top of a Saudi listing, Nasser said the company was looking to list in either Hong Kong, London, New York or possibly even Canada, and was examining common practices used by other state oil companies that have listed and trying to follow a similar path. But overseas stock exchange rules could mean investors are only able to book a fraction of Aramco's vast oil reserves. The US Securities and Exchange Commission has the strictest reserve disclosure rules, including a potentially troubling one that insists proved undeveloped reserves must move toward development within five years to stay on the books. This could affect Aramco's target to raise $100 billion in the IPO. The other problem with listing in the US is exposure to a legal system that allows lawsuits to be filed against Saudi Arabia over its alleged links to the Sep. 11, 2001 terrorist attacks (OD Nov.18'16). In a positive development for potential investors, Aramco could be about to see its tax bill sharply reduced, however. The company currently pays a 20% royalty on its revenue plus an 85% tax on its income, Nasser told Bloomberg, declining to say what tax rate the kingdom is considering. One source who attended a briefing with Deputy Crown Prince Mohammed bin Salman, who is in charge of Saudi Arabia's economic strategy and first announced the Aramco IPO plans one year ago, said taxes imposed on Aramco's income might be reduced to 50% (OD Jan.8'16). Amena Bakr, Dubai

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