Baker Institute expert: Saudi Aramco IPO possibly on the table again


David Ruth

Jeff Falk

Baker Institute expert: Saudi Aramco IPO possibly on the table again

HOUSTON — (April 2, 2019) — This week, Saudi Aramco for the first time opened its books, revealing that the company generated $111.1 billion last year, making it what’s probably by far the world’s most profitable company. The performance numbers reveal an efficiently run company with advantages and disadvantages, according to an expert at Rice University’s Baker Institute for Public Policy.

Credit: University

“On the plus side, Aramco has monopoly access to some of the world’s cheapest oil, which it produces at extremely low cost and sells at prices many multiples higher,” said Jim Krane, the Wallace S. Wilson Fellow for Energy Studies, who is available to discuss Saudi Aramco with the media.

“But, unlike majors like Shell and Total, not all of Aramco’s oil output gets sold at international prices,” Krane said. “A third of Saudi Aramco’s oil sells in the domestic market at government-fixed prices as low as $6 per barrel. On top of that, the company had to pay $102 billion in taxes to the Saudi state, handing over nearly a third of the $356 billion in total 2018 revenues.”

“Add to that the fact that Saudi Aramco invests billions in spare oil production capacity which it only uses during periods when there is an oil shock. These factors make Aramco a much different entity than independent oil companies like Exxon and Shell. Shareholder-owned companies simply don’t face these constraints.”

The Aramco numbers reveal the incredible expense of running Saudi Arabia as an absolute monarchy, using patronage spending to maintain citizen loyalty, said Krane, the author of “Energy Kingdoms: Oil and Political Survival in the Persian Gulf.”

“Aramco’s earnings must simultaneously bankroll government welfare benefits for 20 million Saudi citizens, while funding the royal family’s needs and covering the capital expenses of Aramco’s upstream investments,” Krane said. “That’s a big ask for a single company.”

The revelations expose a divide among Saudis on the wisdom of economic diversification, Krane said.

“On one side, technocrats led by the crown prince have been pushing for diversifying the economy by selling off a piece of Aramco,” Krane said. “On the other are those who argue that selling a stake in Aramco is folly, because Aramco’s enormous profits cannot be replicated in other sectors.”

The prospectus puts Saudi Aramco’s average lifting costs at $2.80 per barrel. Added to the $4.70 per barrel in average upstream capital costs, this puts the average cost of production at $7.50 per barrel, within the range of analysts’ estimates of $5-$10 per barrel, Krane said.

“With this sort of cash flow with oil at $60, I’d expect the investor community would love to see the Aramco IPO reinstated,” he said.

Krane, a member of the Baker Institute’s Center for Energy Studies, specializes in energy geopolitics and energy consumption in Saudi Arabia and the Middle East.


For more information or to schedule an interview with Krane, contact Jeff Falk, associate director of national media relations at Rice, at or 713-348-6327. The Baker Institute has a radio and television studio available.

Related materials:

Krane bio:

Krane on Twitter: @jimkrane

Follow the Baker Institute via Twitter @BakerInstitute.

Follow the Center for Energy Studies via Twitter @CES_Baker_Inst.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Founded in 1993, Rice University’s Baker Institute ranks among the top three university-affiliated think tanks in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at or on the institute’s blog,

About Jeff Falk

Jeff Falk is director of national media relations in Rice University's Office of Public Affairs.