Saudi Aramco loses permanent oil deal with the state - report
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Saudi Aramco loses permanent oil deal with the state – report

Saudi Aramco loses permanent oil deal with the state – report

The agreement’s duration has reportedly been reduced from perpetuity to 40 years


Saudi Arabia has reportedly cut the duration of an agreement giving state oil giant Saudi Aramco exclusive rights to hydrocarbon fields.

The move comes following reports that the government has called off a planned listing of Aramco and disbanded a team of financial advisors to focus on acquiring a stake in petrochemicals firm Saudi Basic Industries Corp.

Read: Saudi energy minister denies report that Aramco IPO will be called off

The Financial Times reported on Monday that Saudi Aramco’s concession deal with the state to explore and develop resources had been cut from perpetuity to 40 years with a renewal option.

Sources told the publication the change was part of plans to prepare the company for a stock market listing after energy minister Khalid Al Falih insisted it remained committed to an IPO.

Read: Saudi Aramco aims to buy controlling stake in SABIC

He said last week that a new concession contract had been agreed as part of the listing process, according to the FT.

However, with the IPO process believed to be halted sources told the publication it was a “pointless exercise” that only served to exert ministerial control over Aramco, which wanted to keep the perpetual contract.

Sources said the government initially pushed for an even shorter duration more in line with the 20-year deals given to international oil companies.

This would have impacted the firm’s valuation, declared reserves and long-term plans.

Texas A&M Univeristy professor John Lee told the publication that the new contract terms could prompt Aramco to produce oil at a faster rate.

“Often for oil companies, the shorter the concession, the sooner you must produce the resources,” he was quoted as saying.

With few alternatives for now though, there is little sign the contract would not be renewed and the kingdom’s output policy is expected to be unchanged.


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