Opinion

Saudi tax cuts adds USD 1 trillion to corporate valuation of Saudi Aramco


Rystad Energy's valuation of Saudi Aramco's upstream portfolio has increased by about $1 trillion following Saudi Arabia's announced tax rate reduction. Yesterday the Kingdom of Saudi Arabia announced that the tax rate for the petroleum industry would be reduced from 85% to 50%. This change implies that more money is left for the Saudi Aramco, which makes the company more attractive for investors.

“This tax change has a huge impact on the valuation of Saudi Aramco. By drastically reducing the tax rate, more cash will go to the potential owners of the Saudi Aramco compared to the government. Assuming long-term oil prices averaging 75 USD/bbl, the valuation of the company increases from $0.4 trillion to $1.4 trillion” says Espen Erlingsen, E&P valuation analyst at Rystad Energy.

Rystad Energy estimates the valuation of Saudi Aramco based on discounted free cash for each individual field. The valuation of Saudi Aramco heavily depends on the tax regime, and how the profit is being split between the government (through taxes and royalties) and the owners.

“The total value of Saudi Aramco's revenue after costs is around $3.4 trillion. With the old tax system, around 88% of the value went to the government through taxes and royalties, while with the new system around 60% of the profit goes the government. Oil price should be reaching 75 USD/bbl by the time of the public offering; this is also close to the long-term oil price needed to justify the share price of other large global oil companies. ” comments Erlingsen.

Breakdown of the valuation of Saudi Aramco before and after the tax change* [USD billion]



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