OPEC+ Sets Production Quotas

This week had a variety of energy news, including OPEC+ deciding to maintain the current oil production level, Saudi Aramco selling $12 billion in stock, and ConocoPhillips and Marathon (two long-standing U.S. oil companies) agreeing to a merger.

Saudi Arabia, the largest producer, worked to reach an agreement that delays roughly 2 million barrels per day of cuts, which were set to expire at the end of June. The curbs will continue in full in the third quarter and then be gradually phased out over the following 12 months.

The United Arab Emirates has pushed for an increase in its production quotas for several years, and it was granted a 300,000 barrel-per-day increase at the meeting.

Iraq, Kazakhstan, and Russia also wanted to increase production but finally agreed to maintain current levels.

Saudi Aramco’s $12 billion share sale sold out shortly after the deal opened on June 1.

The government had demand for all shares on offer in a few hours after books opened. Books were covered within the price range of 26.70 riyals to 29 riyals.

The extent of foreign participation will be closely watched as an indicator of interest in Saudi assets. During Aramco’s 2019 initial public offering, overseas investors had largely balked at valuation expectations and left the government reliant on local buyers. The $29.4 billion listing drew orders worth $106 billion, and about 23% of shares were allocated to foreign buyers.

A top selling point of the latest offer is the chance to reap one of the world’s biggest dividends. Investors would cash in on a $124 billion annual payout that Bloomberg Intelligence estimates will give the company a dividend yield of 6.6%.

The government kicked off the deal the same day that OPEC+ gathered to discuss oil output policy. The group agreed to extend its production cuts into 2025 while winding down some of those curbs from later this year. That would allow Saudi Arabia to relax output restrictions on Aramco.

The Saudi government owns about 82% of Aramco, while the kingdom’s wealth fund holds a further 16% stake. The kingdom will continue to be the main shareholder after the offering, which has been in the works for years.

ConocoPhillips agreed to acquire Marathon Oil in an all-stock deal valued at $17.2 billion in an effort to stay competitive with other large oil companies based in the U.S. ExxonMobil, Chevron, Occidental and Diamondback Energy have all recently made acquisitions.

ConocoPhillips and Marathon both have extensive operations throughout the U.S. and this acquisition will boost activity in the Permian Basin of West Texas and the Eagle Ford in South Texas.

Alex Mills is the former President of the Texas Alliance of Energy Producers.