[tuberelay]

2 trillion market cap?

Corrupt russian oil and gas companies trade at 4x earnings. At that valuation with annual earnings of $90 billion aramco should be valued at more like $360 billion.

Sorry, but that's the penalty you pay for being a corrupt journalist murdering autocrat.

[lordgrenville]

As usual Matt Levine has a helpful take on this:

'Saudi “domestic investors could probably provide enough support to achieve that $2tn valuation.” Those domestic investors will probably pay the $2 trillion out of some combination of enthusiasm and, uh, “enthusiasm”...

'Look if WeWork could have ordered banks to lend money to investors to fund share purchases, and if it could have threatened people with arrest and torture if they didn’t buy shares, then I am pretty sure its IPO would have gone well. Aramco more or less can, which means that (1) there is a chunk of pretty inelastic demand at $2 trillion and (2) even if you are a foreign investor who thinks that the $2 trillion number is laughably high, you will be very diplomatic about expressing that in meetings with Aramco officials.'

https://www.bloomberg.com/opinion/articles/2019-10-28/effici...

[dcolkitt]

The difference is that Saudi oil reserves basically cost nothing to extract. Maybe $5 a barrel. You literally poke a hole in the ground and oil bubbles out.

That makes Aramco significantly less risky than your typical oil company. Even if oil goes to $25 a barrel, the company will still be solvent, and even profitable. Mismanagement (like Pemex) is basically impossible under these conditions. It also means less capital reinvestment is necessary, so more dividends for the shareholders.

Less market risk, less operational risk, higher cash yield. All those things drive up the valuation multiple.

[bloak]

Personally I'd be worried that the easy-to-extract Saudi oil is about to run out and the Saudis know that and that's why they're selling. They run a fairly tight ship and might be capable of suppressing the truth about their oil reserves.