New Boss at Aramco

After almost two years of delay, American oilmen sat down last week with Saudi Arabian Oil Minister Ahmed Zaki Yamani to arrange a complete Saudi buy-out of Arabian American Oil Co., the free world's largest crude producer. But they kept a tight curtain of secrecy around the five-day meeting at the plush Bay Point Yacht and Country Club, near Panama City, Fla. As most of the negotiators--including executives of Exxon, Mobil, Texaco and Standard of California, the four American partners in Aramco--made for their private jets at the conclusion of the meeting, they refused to discuss what price the Saudis would pay for the 40% of Aramco that they do not yet own. At week's end the only formal announcement Aramco made was that the major issues in the transfer of ownership had been resolved, but that a further meeting of the legal and technical staffs was necessary to conclude a final agreement.

Still, many details of the deal that is shaping up filtered through the New York financial community. According to Wall Street sources, the U.S. presence in Saudi Arabia, where Aramco has transformed a section of Dhahran into a small American-style town for its employees, will remain as strong as or stronger than ever. The oil firms will continue to pump most of Saudi Arabia's oil as contractors working for a fee. The Saudi government will give them a long-term guarantee that they can buy a fixed proportion--amount unknown--of Aramco's output, currently 7.5 million bbls. per day, and will grant a discount on the oil. The four firms will pay as much as 22-c- per bbl. less than the going price of Saudi crude, currently $11.51 per bbl. An additional 4-c- to 5-c- per bbl. will be knocked off the price as part of the fee that the companies will receive for continuing to provide technical and managerial skills the Saudis sorely need to operate their wells. To handle these tasks, the oil firms will form a new company known as Stemco.

Another sweetener for the companies: the Internal Revenue Service reportedly has issued a preliminary advisory indicating that any difference between what the companies' assets are worth and what the Saudis pay for them can be treated as losses to reduce their taxes. As for Aramco itself, it is generally assumed that its operations under 100% Saudi ownership will be expanded far beyond the oil business into enterprises aimed at speeding development of the country.

Mutual Benefits. The total takeover of Aramco will complete a process that began in 1973, when the government acquired 25% of the concern. Subsequently the Saudis increased their ownership to 60%, and by late 1974,

Yamani was hinting that the remaining 40% would be nationalized within a few months. Yet for all the pressures on the Saudis to move ahead, including 100% takeovers of Western oil consortiums in Iraq, Kuwait and, recently, Venezuela, negotiations faltered--and not only over the amount of compensation. For one thing, the assassination of King Faisal last year distracted attention from Aramco. Then too the companies themselves were unable to agree on some items because of their differing goals.

In the view of most experts, the takeover is unlikely to have any impact on crude prices and production, which the Saudis have tightly controlled for the past two years. In general, the deal should benefit both sides. The Saudis can continue to draw on the much-needed expertise of the companies in developing their nation. The oil firms can settle down to planning, free of much past uncertainty about the price and supply of their basic raw material.

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