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Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Saudi Aramco President & CEO Amin Nasser and CNBC's Andrew Ross Sorkin. Excerpts of the interview aired in CNBC's "Squawk Box" today, Monday, October 23rd and throughout CNBC's Business Day programming.
Following are links to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/10/23/saudi-aramco-ceo-saudi-aramco-ipo-on-track.html, https://www.cnbc.com/video/2017/10/23/saudi-aramco-ceo-ipo-listing-venue-will-be-shared-in-due-course.html?play=1, https://www.cnbc.com/video/2017/10/23/saudi-aramco-ceo-saudi-arabias-vision-2030-plan.html?play=1 and https://www.cnbc.com/video/2017/10/23/saudi-aramcos-ipo-plan-in-focus.html?play=1.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Thank you for having us, it has been a remarkable 24 hours to spend time with you and your team and to really see what this company is on the ground. I wanted to start the conversation by talking about the transformation of the Kingdom. The Kingdom in the context of the transformation of this company. Which is to say where do you see it over the next, well, until we get to 2030? Where are we?
AMIN NASSER: I think the transformation of the Kingdom and the Vision 2030 is very aspirational where the Kingdom will have a more sustained economy, instead of relying only on only one commodity, which is oil. The economy will be diversified and private sectors will be chipping in more. Basically we are looking at taking the private sector from 40 to 65% participation in our GDP, for small and medium enterprises also picking up from 20 to 35%. More industrialization in the kingdom, more employment, more participation of women in the workforce. So there's a lot of good things that will be happening as part of Vision 2030 and the transformation and the privatization that's happening in the kingdom. And you're talking about privatization that's taking place in all sectors, from health to schools to boards, including Saudi Aramco of course and the rest of the industry. So [the] private sector will expand tremendously and hopefully that will result in more jobs and more industry created in the kingdom.
SORKIN: Where do you see Aramco within the context of that transformation?
NASSER: I think Aramco is at the heart of Vision 2030 and that transformation because talking about the listing of Saudi Aramco, privatizing Saudi Aramco, putting a certain percentage of Saudi Aramco on the market, we're looking forward to participating in that and supporting the vision 2030 and being included in that and hopefully participating through Saudi Aramco efforts in different sectors in terms of refining, in terms of upstream, in terms of the petrochemicals, and going down the value chain, creating more industries. A lot of contribution will be coming through Saudi Aramco. In addition, the listing will elevate our international visibility. Decision -making, strategies, and also our governance. All of these will be helped.
SORKIN: How do you think the culture of the company is going to change once it's public?
NASSER: Aramco has always been run like a publicly traded company. If you look at our governance we have independent board members, everything that is being done at the company is similar to what is being done at any international oil company in terms of the way we do business. The only exception is that our shares are owned by only one entity, which is the government. But in reality we always thought of ourselves as we have a lot of similarity to publicly traded companies
SORKIN: One of the remarkable things about this company is how long-term oriented it has been historically and how focused it's been on the long term in terms of the type of investments it makes and the types of education programs and things you've put together. In a short-term world that seems to be dominated by the stock market, do you worry that there's going to be pressures put upon you that are different than they are today?
NASSER: At Saudi Aramco, you are absolutely right, everything is based on the long term. And the long-term strategy yielded a lot of benefits for the company. Our results today in terms of costs, in terms of safety performance, in terms of environment, in terms of local content, technology and talent development is based on our long-term strategy. Where we are today is based on these types of strategies. I think my prediction that it will be easy to explain to the investors later on that these strategies and our track record in developing and delivering results and performance, and achievements, and success through the history of Saudi Aramco will make the investors better understand how this long-term strategy helped the company to achieve all of these things, and they will understand.
SORKIN: Do you ever worry about a conflict between public shareholders and the Kingdom?
NASSER: I think both are looking for results. Both are going to be looking for a better performance. I don't see any issues between our current shareholders and the public that will be participating when we are listed because ultimately we need to deliver better results and that's what the public will be looking for. And that's what our shareholder is looking for. I think that is aligned in terms of what we are expected to deliver.
SORKIN: Clearly oil here, gasoline is priced more cheaply than it is in the rest of the world. You could see a day where shareholders say you know what you really should be charging the same amount. How do you think those things get rectified?
NASSER: There is a reform that is ongoing, and will continuously be introduced that increasing the prices to come closer to international prices with time. And I think that shareholders or investors will see the benefits of all of this reform that is happening currently in the Kingdom. So there is a lot of reform that is happening. In terms of rate of returns it could be more that is the expectation.
SORKIN: Those of us who haven't been here before, I imagine most of the west have their own preconceptions about the Kingdom and Aramco. When you think about misunderstandings? What do you think is the most misunderstood piece of the Aramco story?
NASSER: I think for Aramco, seeing is believing. For Aramco unless you come here and see our operation, the way we conduct business our performance, we are well- known by the way, globally with our customers. They know Saudi Aramco in terms of reliability, in terms of quality in terms of cost optimization, in terms of our size, our reserves, all of that. The excellence programs that we have. We have a track record and a good understanding. It's only the people that are not in the business that do not understand Aramco, they are not part of Aramco, they are not part of the business that we are in currently, they get surprised because they don't know much about Aramco. If you are involved in Aramco as a customer anywhere in the world you will appreciate the reliability our systems produce, the quality of our products, the safety, the environment, the technologies, the talents, the capability that exists at the company. So all of these are well appreciated by our customers and clients.
SORKIN: One of the things, I imagine you may think is misunderstood is your reserves. There's long been the conversation about the fact that you've had 260 billion barrels in reserve for a very long time and that hasn't changed. Some others and investors say why? How is it possible that that's the case?
NASSER: We do have a strong exploration program at Saudi Aramco - even during the downside turn, when a lot of companies shut down some of their exploration programs to optimize their costs going forward, Saudi Aramco continued with its exploration programs. So there were additions that we were adding through all of the – in the past, based on our exploration program and the areas that were undeveloped or unexplored in the kingdom. Now when we are listed, whatever market we are listed in, we will meet all the requirements of that market in terms of reserve assessment or whatever is required. And that is our promise when we go to the market.
SORKIN: I know you can't speak too much about going to the market but let me ask you this. There's been lots of speculation about whether you'll list in New York or London, or there's better investors in New York but more regulations or whether London.. how do you think about it? What's the framework with which you're thinking about this process?
NASSER: There is a lot of rumors, you are absolutely right, and speculation but people need to appreciate the size of Saudi Aramco. And you have only seen yesterday and today only a small piece of Saudi Aramco. Saudi Aramco, in terms of size, in terms of maximum sustained capacity is 12 million barrels. In terms of refining capacity 5 million barrels. Talking about a huge chemical capacity. We have international operations in many countries, from Korea to the U.S. to China to Japan and we have the downstream facilities in different parts of the world. So Aramco in terms of size and capacity is huge. so we did a lot of analysis of all of these markets. We have always said that we would be listing in 2018 and to be more specific, in the second half of 2018. However, I think journalists and writers they are expecting more and more information and we are governed by certain rules when talking about the IPO but what we have said from the beginning is that we will be listing in 2018 and the IPO is on track and the listing venue will be discussed and shared in due course.
SORKIN: Another thing that's been speculated is whether a sovereign comes in and buys a piece of the company, like the Chinese. Let me ask- are you talking to them?
NASSER: Saudi Aramco is not talking, as I said, to the Chinese or others. Saudi Aramco, as I said, we did prepare our books and streamlined all the necessary work that is not necessary for listing. We evaluated and analyzed the different venues, stock exchanges in different countries, there are so many of them. All of that analysis is being reviewed and detailed to make a decision at a certain stage. And we're not going to be pushed by a journalist saying this needs to be talked about or not. So this is a government sovereign right, the government will decide in due course about the venue and all of the details.
SORKIN: But if a stake was sold to another sovereign, like China, would that change the outcome of the plan to pursue an IPO? There's been speculation that it if one piece was sold, perhaps that could delay or even put it off for many years?
NASSER: You are speculating, now.
NASSER: As I said, things are on track, and progressing as expected in terms of as we planned earlier.
SORKIN: Let me ask you a different question, which is this: One of the remarkable things about the trip is just the technology you have to literally have to turn on and off wells with such rapidity. As a result of that, you can bring up production very quickly, you can reduce production. How much influence do you think you have over the price of oil?
NASSER: I think the market will dictate the price of oil, not the company. Even the production currently is dictated by the ministry of energy rather than Aramco. And Aramco does not dictate production and there is an agreement that we will adhere to whatever the ministry asks for. But whatever is put on the market in terms of supply demand balances, will dictate the price. As you have noticed, we're averaging more than $100 dollars in 2014. There was more supply in the market, and as such, prices went down. As the balance between supply and demand are getting closer now, they are balanced almost, you can see that the price started to increase and it is getting much better.
SORKIN: But the Kingdom has targeted $60 dollars. Is that correct?
NASSER: I'm not going to speculate on prices.
SORKIN: Let me ask you, too, differently.
SORKIN: Do you feel any pressure to the degree that you have any influence over the price to keep it at a certain price given the dynamics at play with Aramco and the Kingdom?
NASSER: What we are doing is making sure we deliver our commitment, and optimize our cost, and delivering more revenue to our shareholder. Aramco is profitable under any price, we'll put it that way. So even when the market went down in 2015 and 2016, our capital program was not impacted. Actually we expanded our capital program and we increased our investment globally. So it shows you the strength of the company globally, even in this market with much higher taxes at that time, than what we currently have and with much lower prices. So because of our low cost and high efficiency in the company, we are able to sustain any price that the market calls for.
SORKIN: One thing that I'm sure people don't understand is how many different industries Aramco touches. Which is to say it is far beyond just petrochemicals. We learned this morning your technology is in televisions – Samsung televisions. That you're working on non-metal piping. Speak to the technology innovations that this company is working on.
NASSER: Our technology, you know, we – I mentioned we have 8 technology hubs outside of Saudi Arabia, and a few in the Kingdom, a total of 11 technology hubs. Our technology is either to improve the performance of our current operation, just either upstream or the downstream sector, and to optimize our cost, like what you have seen in – our SmartWater and nanoparticles and robotics, and all of these things that help us to optimize our costs, and reduce the cost of power. There are technologies that are strategic for the company. You mentioned some. For example, we are looking at crude to chemical. And how can we shift?
SORKIN: Crude to chemical.
NASSER: Crude to chemical. And there is a lot of patents that the company delivered and we are – we will soon be looking at The Violet Project that we will be doing, to turn it crude to chemical, completely crude to chemical in one shift. And these things are strategic and important to us to strengthen the position of oil in the future. You talked about pipes – nonmetallic pipes. One of our increments will be coming next year. Most of the pipe we are using is nonmetallic – is carbon, made out of carbon. If you look at these pipes over the long-term of the life of facility, 30 percent less cost. Because we need less. So basically, we are looking at how we can strengthen crude over the long-term. What technologies that we can utilize today, looking at the future. Because we think crude is not only the transport sector, crude can be utilized in so many things in the future. And we are going to increase the utilization of crude through petrochemical, through identifying new sectors that don't use crude - like iron ore used in pipes, now we are talking about non-metallic. That is a big industry. And so is other industries that our technology team is looking at for the future.
SORKIN: Talking about technology, what do you make of the US Shale boom?
NASSER: I think that the shale boom has definitely increased the contribution of oil from the U.S. The number of rigs when the price was high increased significantly, when the prices went down they also went down significantly. We can see from the last 6 weeks that is has balanced, actually it's going down slightly. Its different place, different quality of shale. They require different margins, so different costs per barrel. And the market will dictate generally how much of that shale oil will come. However, if you look the additional barrel that came out of shale was about 400,000 barrels. But if you look at the demand this year, it's 1.6 million barrels. The additional demand that we have seen this year. Shale oil will contribute additional barrels but it will all depend on the price of crude. If this price is higher, more shale will come. If the prices stabilize or go down, this shale will be coming [down]. But also the concentration that we are seeing today is on the sweet spot of shale and this will not last forever. Shale is a big player. You can concentrate for some time on the sweet spots and produce more oil. But ultimately you need to venture downward. And that's where you have less quality. And you require more cost to produce these barrels.
SORKIN: So how much do you worry about the boom, the shale boom in the US? When you have meetings Monday mornings, is this top of mind or no?
NASSER: No because as I mentioned, because year on year, if I gave you the number, the contribution is 400,000 barrels. But there is a healthy demand, which you have seen. Our expectation this year is that the demand was 1.3 - IEA just announced lately that the demand for this year is around 1.6 million barrels, 2017, actually. There is an additional then our estimate, by 300,000 barrels. So shale contribution is good, but it's barely offset the additional demand. Not to mention it's a national decline. 98 million barrels you're talking about almost 5% national decline. So the industry needs to contribute for the national decline, to offset the national decline, which is about 5 million barrels per day. And meet the additional demand which is 1.6. So if shale oil picks up additional barrels that is fine.
SORKIN: And what do you think about the revolution of electric vehicles? And the targets that the Chinese for example have put on that, and what that's going to mean for your business in the future?
NASSER: I think electric vehicles are making good progress. But if you look at the number of electric vehicles in 2016, almost 2 million vehicles, electric vehicles. But 700,000 out of the 2 million is hybrid. So there is an oil based engine there. 2 million out of a fleet, a car fleet, of 1.3 billion, is a very small percentage. Talking about 0.2 percent. If you look at IEA prediction by 2030, there is going to be 160 million vehicles – electric vehicles. If you look at the most optimistic forecast of electric vehicles by 2040 – forecast, you're talking about 550 million electric vehicles but out of a fleet of 2 billion vehicles. So the number of conventional vehicles still in the market, even though they are more efficient for sure, is still a lot compared to what we have today. So electric vehicles will continue to grow. They will take good market share but it will be decades before they show the – a significant percentage of the energy mix.
SORKIN: And do you have to do anything to prepare for that moment?
NASSER: We, as I said, we are as an industry, in general, what we are doing— we are making sure that we have the right amount of production capacity, the right amount of reserves to prepare for the future because we need to continue to supply the world with enough energy. At the same time we are cognizant that we need to reduce our carbon footprint, so a lot of technologies that we are doing is either about managing our carbon, carbon capture, utilization or making reductions or turning CO2 to useful products. There is a lot of programs that the industry and Saudi Aramco are doing to minimize our carbon footprint. So we are preparing for the future by doing that. At the same time, we are identifying a new usage for crude. Crude to chemical is a good example. We are looking at almost 11 million barrels in the chemical business. The chemical business growth is about 3 percent, much more than the growth of the transport sector. And what can you do to grow that even further by identifying new usage like non-metallic pipe, other things you can utilize more carbon. We are working our technology. How can we make engines more efficient? How can we capture carbon from mobile sources? I don't know if you've seen it at the R&D center - we are successful so far in capturing up to 25% of CO2 on vehicles. So there is a lot of technologies to manage our carbon footprint, identify new usage for the crude, to offset some of the decline. Don't forget the electric vehicles only capture 25% of the total consumption. 75% percent is for heavy shipping, for aviation, for shipping, for petrochemicals, for other things.
SORKIN: Final question. President Trump was recently here. What is the view here in the Kingdom of our president and of our politics?
NASSER: I don't like to talk about politics but we had the recent visits. We enjoyed the visit of President Trump, we enjoyed the collaboration that we have with a lot of U.S. business and partners, and have a lot of good business with them. We signed a good number of agreements during the visit of President Trump which solidified our partnership with a lot of the U.S. companies that we have been doing great business with them. And we will continue to do business. So it was a very successful visit to the Kingdom and gained a lot of support here in terms of strengthening relations and collaboration between Saudi Arabia and the U.S.
SORKIN: And you're not on Twitter.
NASSER: I'm not on Twitter.
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