Saudi Aramco has now released its IPO Base Prospectus and the reaction has been varied and often confused. The headline was its $111 billion in profit, which many appropriately pointed out is not so much profit but rent. (See explanation below.) Second, the cost per barrel, put at $x, surprised many as seeming rather low. Recent supply curves have put Middle East onshore oil costs at $20-40/barrel, but before prices soared after 2003, estimates were much lower. Given that the big Middle Eastern producers were not experiencing depletion on any significant scale (Saudi Arabia was producing less than 2% of its reserves each year in the 2000s), implying that costs should not have increased as a result of depletion, and that the increases were cyclical, reflecting the stresses on the service industry as global upstream investment soared. The other item that created at least a few headlines was the […]