Aramco’s spending on innovation faces the challenge of IPO pressures

UNITED STATES (OBSERVATORY NEWS) — From robots to drones, Aramco has increased spending on technological innovation despite falling oil prices. But the IPO and investor pressure for higher profits could force it to retreat.

Saudi Arabia is part of the company, which is the mainstay of the economy and social stability in the Kingdom, for sale, in a step that forms the cornerstone of Crown Prince Mohammed bin Salman’s strategy to diversify the economy dependent on oil.

Trading of the company’s shares on the domestic financial market and then on a foreign exchange is expected to lead to calls by companies and individual investors for maximum profit margins, albeit at the expense of expenses, including those related to research and technology.

In recent years, the world’s most profitable companies have increased their spending on innovation, unlike many other oil companies that have been forced to cut back because of falling crude prices.

According to Aramco’s management, the company’s R&D spending was $ 591 million in 2018, compared to $ 507 million in 2017.

“Research and development are creating a useful technology for Aramco, but some projects may or may not be commercially viable,” Eileen, the father of Saudi oil affairs, told AFP.

“Aramco has never had to respond to investors who are interested in the quarterly results of the company. When the IPO is underway, that will change,” she said.

Aramco recently demonstrated its technological innovation capabilities during a media tour at its headquarters in Dhahran, where it has built huge residential compounds, schools and commercial centers for its 15,000 employees, similar to those on the outskirts of major US cities.

Engineers sat in front of computers in a command center between giant screens that track the flow of crude oil from oilfields, through a complex network of pipelines and refineries, to tankers worldwide.

– Robots and drones –

Employees displayed numerous innovations, from production-enhanced drilling technology to robots and drones built using exploration tools.

“Over the past five years, our R&D spending has more than doubled,” said Ahmed Al-Khowaiter, Aramco’s chief technology officer. “This has opened the door to investment in world-class research centers.”

Aramco says its 1,300 scientists and engineers at 12 research centers around the world, from Beijing to Detroit, are helping it file new patents each year.

Officials say large-scale investments have helped pump oil at minimal cost compared to rivals from under the dunes and seas.

After years of delays, Aramco officially decided on Sunday to list part of its shares in the local market, shortly after the Saudi Capital Market Authority approved the shares.

It set November 17 as the date for the start of the purchase of shares in it without announcing the share price, the actual start date, or even the total offering.

Saudi Arabia is working hard to make the IPO a cornerstone of the crown prince’s 2030 economic reform program. Officials are seeking tens of billions of dollars to fund large-scale projects under this ambitious program.

But analysts questioned whether the IPO plays a constructive role for Aramco itself, seen as the backbone of the economy and social stability.

Energy Intelligence recently said that Aramco is “an example of superior management and efficiency … the best in the Middle East. By rolling out Aramco, Riyadh risks disrupting the formula that ultimately produced a financial well.”

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