From the window of our small plane flying low over the desert, Saudi Arabia’s Empty Quarter looks as remote as the name suggests, with burnt-orange dunes stretching into infinity under the blinding sun. Not even the Bedouin nomads with their camels are visible, because there are too few of them amid the vast landscape. It’s only when the plane bumps down on an empty runway at an outpost called Shaybah that it is clear that the world’s biggest sand desert is not, in fact, empty. We are hundreds of miles from the nearest Saudi town. Yet rising out of the sand between the dunes is a state-of-the-art labyrinth of metal pipes and cylindrical tanks, which day and night pump the crucial commodity that keeps our modern world ticking: oil. “We generate our own electricity, we have our own water supply,” says Khalid Al-Jamea, manager of the Shaybah oilfield, after he meets our plane on the desert strip and hands us chilled face towels to dull the shock of the 110-degree heat. “We are cut off from the world.”
In more ways than one, Saudi Arabia’s apartness from the world may be on the verge of ending—with major consequences for this deeply conservative Islamic kingdom, and for global financial markets too. More than 80 years after American wildcatters pitched their tents in the Arabian desert in a hunt for oil, the government-owned Saudi Arabian Oil Co.—Saudi Aramco for short—is considering whether or not to sell about 5% of the company to outside investors. The long-planned IPO, tentatively set for 2018, would end 38 years of total state control, in which the world’s biggest oil producer has had exactly one shareholder: the Saudi king.
The scale of the operation is colossal. Saudi Arabia claims that its proven oil reserves are a head-spinning 260.8 billion barrels—13 times as large as the reserves booked by Exxon Mobil (XOM), the biggest independent oil company in the world, and the most of any country other than Venezuela, where much of the reserves are unreachable. Saudi Arabia also claims it has more than 298 trillion cubic feet of natural gas. Based on those resources, Wall Street analysts have estimated Aramco’s market value between $1 trillion and $1.5 trillion. That would easily make Aramco the world’s most valuable company, surpassing Apple (AAPL) and its recent market cap of $830 billion. The Saudis have said that Aramco should be valued at $2 trillion.
Even at the low-end estimate, floating 5% of Aramco would represent the biggest IPO in financial history by far, at least double the current record set by Alibaba (BABA) when it went public in 2014. Banks such as Morgan Stanley and HSBC, which have received requests for proposals, stand to earn fortunes in the process. So big is Aramco’s potential impact on any single stock market that London and New York have engaged in a gloves-off contest to become Aramco’s main foreign listing, while the royals in the capital of Riyadh have kept their decision a tightly held secret behind the palace walls.
Indeed, when Saudi Arabia’s Crown Prince Mohammed Bin Salman, commonly known as MBS, unveiled his plans in January 2016 to take some of Aramco public, it stunned even the company’s own executives. The IPO, as it turned out, was the centerpiece of a radical blueprint called Vision 2030 that the 32-year-old heir to the throne had crafted in order to overhaul the country over 14 years. Aramco’s dizzying oil production—more than 10 million barrels a day—generates about 90% of Saudi Arabia’s revenues and most of its foreign earnings. The proceeds from an IPO—a 5% slice of $2 trillion would be $100 billion—could potentially turn the government’s Public Investment Fund into a global financial player.
The young prince aims to transform his country from the world’s most powerful petrostate, whose glitzy wealth is evidenced in many Western capitals, into a diverse economy capable of employing millions of youth, attracting tourists to brand-new Red Sea resorts, and fostering innovation and entrepreneurship. Private health care and education are also in the works. If all that pans out, the country could become something resembling a normal economy, for the first time since the Al-Saud dynasty created a nation called Saudi Arabia in 1932. “Vision 2030 is a transformation into a more sustainable economy and job creation,” Aramco’s CEO and president Amin Nasser tells me over fresh-roasted Arabian coffee, in his executive suite at the headquarters in Dhahran, in the country’s eastern province. “And Aramco is at the heart of it.”
See our sidebar: A Brief History of Aramco
If the Saudis decide to move forward with the IPO—recent news reports have suggested that they are weighing their options—the transformation could be profound indeed. For decades, Saudi Arabia has hewed to a severely restrictive form of Islamic rule—the only country in the world that banned women from driving (until this September) or traveling abroad without a male relative’s permission. Selling shares will require not only a deep shift in Saudis’ expectations but also a willingness to allow outsiders into a closed world. That is one reason Aramco agreed to let Fortune visit its oil operations in early October, lifting the shroud that typically shields the company from outside scrutiny.
Aramco pumps about one in every nine barrels of oil in the world and ships some 130,000 barrels every hour; it is the only producer capable of quickly upping output if a war or natural disaster, for example, rocks global supplies. Yet what Aramco wanted to show Fortune went way beyond oil; visiting an oilfield seemed almost an afterthought. In fact, driving into the gated Dhahran headquarters, you could almost mistake Aramco for a tech company, with its low-slung buildings housing banks of computers, and engineers strolling along paved paths under palm trees. The compound is called “camp” by Aramcons, many of whom have been raised “in camp” as kids of Aramcon parents.
Through several hours of presentations, managers show off whiz-bang innovations on wall-size screens, all aimed, they say, at exploiting Saudi Arabia’s gargantuan natural wealth more efficiently than any other oil company on earth. Through one set of locked doors is the nerve center—Oil Supply Planning and Scheduling, or OSPAS. It is off-limits to most staff, since it contains the company’s most sensitive data. Along a wall the length of a football field, screens track in real time every barrel pumped, piped, refined, stored, and shipped, across the kingdom and from offshore facilities in the Arabian Gulf and Red Sea, giving an instantaneous snapshot of all operations. Click on any rig, and a number counter shows how much crude is flowing at that moment. A schedule drawn up 45 days in advance lists each order, and images of tankers show barrels being loaded, including what grade of oil and where it is headed.
But this is the easy part for a company that has shipped giant quantities of crude for nearly 80 years. Far more challenging is Aramco’s bigger goal: sharply increasing its ability to extract oil from any single reservoir—potentially making the company much more valuable to investors. The aim is to increase recovery rates from about 50% to 70%—an increase that Aramco believes could add another 80 billion barrels to its reserves. Nasser has told the industry that he also aims to increase Saudi Arabia’s total discovered reserves within a decade from about 800 billion now to about 900 billion barrels, a figure that includes crude that’s not reachable with current technology.
On the Dhahran compound, there are glimpses of how Aramco is trying to pull this off. In the “geosteering section,” a wall-size screen tracks up to 90 oil wells at a time, displaying moment-by-moment operations, while a group of geoscientists sit at computer monitors in the room, directing the drilling to the most oil-rich fissures in the stone. The fishbone-shaped drills 5,000 feet under the desert floor at Shaybah are directed from this room, some 460 miles away. Next door, teams of engineers from across different disciplines analyze new reservoirs, determining how best to drill there or even if it is worth doing.
Even as oil prices have plummeted in recent years, from about $108 a barrel in 2014 to about $50 a barrel this year, Aramco seems to be doubling down on its efforts to find new reservoirs—in contrast to many oil companies, which have reined in their high-priced exploration. In the company’s Exploration and Petroleum Engineering Center, Aramco recently rolled out new technology called TeraPOWERS, which allows scientists to run countless simulations with pinpoint accuracy. “We will keep adding resources to exploration even in the downcycle,” says Nasser. “It is important to the rest of the globe [for us] to maintain significant amounts of reserves.”
All this R&D should keep the Saudis pumping oil for generations. The question is, Will the world keep buying it? That is an increasingly urgent issue for Saudi Arabia, which has seen its economy hit hard by sinking prices; the International Monetary Fund estimates near-0% growth in the kingdom this year. What’s more, there is mounting pressure on governments to cut carbon emissions, and renewables are proliferating far faster than oil consumption. In the global climate talks in 2015, Saudi Arabia agreed to ramp up solar power and curb its gas-guzzling habits. Oil-powered air conditioners blast out 24/7 in the broiling heat, and one-third of Saudi oil never leaves the country: Locals consume it at highly subsidized, rock-bottom prices. “Saudi Arabia is like a very wealthy individual who is 100% invested in a very volatile commodity,” says Hilal Halaoui, a Riyadh-based partner of the U.S. consultancy Strategy&. “Any wealth manager would tell you that’s really stupid.”
Aramco believes that the world will make a slow energy transition. “It will take decades, not years,” Nasser says. Even so, it is racing to prepare for a changed future. It has sharply increased its natural-gas production over the past two years, including in Shaybah, whose new plant generates electricity for the remote field. And in a joint venture with Dow Chemical, Aramco opened a $20 billion plastics plant last year. To diversify beyond oil production, Aramco has expanded the Red Sea refinery it runs with China’s Sinopec, and in May this year it took full control of the biggest refinery in the U.S., in Port Arthur, Texas, which had been a joint venture with Royal Dutch Shell. Engineers in Dhahran are also retrofitting cars that capture exhaust and store it inside the trunk, to use for other purposes. And another team is working on transforming crude directly into ethylene and polyethylene, without refining it. That could save billions and hugely increase Aramco’s petrochemicals business. All those new industries will require pumping more oil, however, and maybe even adding new reserves. “We develop fields to last for centuries,” says Aramco’s chief petroleum engineer Nabeel Al-Afaleg.
Hard as it may be to believe now, early prospectors almost gave up looking for oil in Saudi Arabia. Back in 1933 the king gave Standard Oil of California (the forerunner to Chevron) exploration rights in the Arabian desert, in an area twice the size of Texas that was largely unmapped and had no roads or communications. The Americans, with their Bedouin guides and camels, found nothing for years. One early explorer (and later Aramco CEO), Thomas Barger, remembered his bosses in California concluding that “we were throwing good money after bad, chucking it down a rat hole in a country half a world away from San Francisco.”
How wrong they were. Standard Oil’s first gusher, in Dhahran in 1938, made it clear that Saudi Arabia had vast oil reservoirs at far deeper levels than elsewhere in the Middle East. The Americans set up the Arabian American Oil Company—Aramco, for short—with drilling rights (See sidebar: A Brief History of Aramco). The Saudis gradually took increasing shares of Aramco and fully nationalized it in 1980. (The government added Saudi before Aramco, but left the “am” for American.) Even today, top Aramcons are largely U.S. trained, and the Dhahran headquarters feels like small-town USA, with street names like Rolling Hills Boulevard. In contrast to life outside, women here jog in sweatpants and T-shirts, families play baseball and go bowling, and the Tex-Mex restaurant has the Temptations on its playlist.
Despite Aramco’s American flavor, Saudi Arabia’s priorities in the oil market are regularly at odds with U.S. needs—and its power is immense. Aramco’s supergiant reservoirs include Ghawar, the world’s biggest oilfield by far, which pumps 5 million barrels a day. That dwarfs remote Shaybah in the Empty Quarter desert, which produces 1 million barrels a day. Anywhere else, Shaybah would be considered huge; its stated oil reserves are a whopping 14 billion barrels. In all, Saudi Arabia pumps triple the oil of the second-biggest producer (Iraq) within OPEC, which the kingdom cofounded in 1960. It has remained OPEC’s de facto leader ever since.
Despite its vast capacity, Aramco’s leverage has been weakened in recent years by the booming shale-oil industry in the U.S. By 2014 the U.S. was pumping about 9 million barrels a day, not far behind Aramco’s output. World oil prices began plummeting, accelerated by a slowdown in the other mega-economy and key Aramco customer: China. In Riyadh, Saudi officials, accustomed to being awash in cash, faced a very rare situation: a fiscal deficit. They opted to keep pumping huge quantities of oil in order to defend their world market share, rather than cut production to try to push up prices. The IMF estimates the country needs oil at about $77 a barrel to balance its budget. With prices stuck far lower than that, Saudi Arabia finally persuaded OPEC to cut output last November.
Aramco itself has little say in how much oil it pumps. Like many decisions, that’s left to officials in Riyadh. In fact, as Aramco prepares for the IPO, much remains uncertain about the company, whose operations are tightly entangled with the government.
That dynamic could change with the IPO, as investors demand hard facts—if the offering goes through as planned, that is. In October, unnamed sources told the Financial Times that Aramco might prefer selling a stake privately. A few days later, Reuters reported that Chinese energy giants PetroChina and Sinopec had offered to buy 5% of Aramco directly—an option that could allow the Saudis to raise capital without making its financial details public.
Aramco is certainly not accustomed to answering probing questions. The company declined to confirm to Fortune several details, including the number of its rigs, the percentage of reserves already produced, or how much oil is left to pump—all details that shareholders might want to know.
Also unknown is how much money Aramco spends on nonessential work like overseeing high-profile building projects. The government has for years handed such tasks to Aramco, which has a reputation for first-rate project management. “These people are world-class athletes, and the most meritocratic organization in the Arab world,” says Sam Blatteis, a U.S. business consultant in the region. When the late King Abdullah decided to create the country’s first co-ed university near Jeddah a decade ago, he tapped Aramco to manage the $20 billion construction. Aramco also oversaw the construction of a petroleum research institute outside Riyadh, designed by famed architect Zaha Hadid. And in Dhahran, company staff excitedly led me through the spectacular new King Abdulaziz Center for World Culture, built by Aramco, with a theater, library, and art museum. Journalists have widely reported that it cost $800 million, but Aramco refused to reveal the price. The company has in the past said the government reimburses it for these projects, though it has offered little information about the financing.
And yet another question remains: Does Saudi Arabia really have 260.8 billion barrels of recoverable oil reserves, as it has stated for decades? That detail will greatly impact the IPO, when investors decide what Aramco is worth. Under SEC rules, the company must have an independent audit of its assets, for which Aramco has hired two Texas companies, according to Reuters. But experts question Aramco’s reserve figure. “The reserve figure has been constant for decades,” says Kate Dourian, an energy analyst for the International Energy Agency in Paris. “No one really knows for sure as there has not been a published audit.” When I ask CEO Nasser to explain, he says the number is unchanged because Aramco has discovered new fields while it pumps oil. Besides, he says, whoever needs to know, knows. “You always need to be transparent with your shareholders. We have one shareholder,” he says, referring to the Saudi king, with whom he was flying to Moscow the next day. “When we go public, we will be more than happy to share all the data, as soon as we are listed.”
For all the opaqueness in Saudi Arabia, the country is changing fast. That is clear from the moment you land. In late September, Saudis watching the state-run evening news suddenly saw an official reading a proclamation they never dreamed they would hear: Starting in June next year, women will be allowed to drive. The response was electric. By the time I arrived one week later, driving seemed about all people wanted to talk about. “Things are totally changing,” Nelly Attar, 27, a fitness instructor, told me in Riyadh; she opened a gym this year after the government finally granted women gym licenses.
Powering the change is MBS, the young prince, and his ambitious vision plan—of which Aramco is the lucrative centerpiece. At 82, MBS’s father, King Salman Bin Abdulaziz Al Saud, is believed to be headed to retirement soon, and when he picked MBS as his successor in June, the more cautious old guard was pushed aside. Now there are countless small changes underway. Developers say they are building shopping malls with movie theaters ready to open—just as soon as the government makes it legal to have cinemas in the Kingdom. “For the first time there is an alignment between what society wants and what the economy needs,” says the Strategy& consultant Halaoui.
Those wants are urgent. Among Saudi Arabia’s 32 million people, an astonishing 60% are younger than 25. The official unemployment rate is about 12%, but the IMF estimates it’s more than double that for youth. For the government to keep that next generation from leaving Saudi Arabia—or revolting against their rulers—they need to create millions of jobs in a vastly expanded private sector. MBS’s vision does not include Western-style democracy. What’s more, the government will cut subsidies on basics like gas and trim the bloated public sector. All that will need a ready injection of cash from Aramco. “The economic diversification program hinges on the success of the IPO,” says Dourian of the International Energy Agency, who regularly visits Saudi Arabia.
The world of malls and women’s gyms in Riyadh is a galaxy away from the remote desert field of Shaybah, where 1,200 Aramco workers toil in virtual isolation and climb the high dunes once a month to eat dinner under the dazzling stars. And yet the future of these two worlds are closely intertwined. Having carved out a supergiant field in the sweltering desert of the Empty Quarter, Aramco has proved it can keep pumping oil under almost any conditions. The company has even created a wildlife sanctuary on the land, with desert gazelle, ostrich, and oryx. Since opening in 1998, the facility now pumps crude from about 300 wells, then sends it across empty land through 397 miles of pipes and out on to the world market. “These are the moneymakers for us,” Shaybah manager Al-Jamea says, pointing to the computers that count the oil pumped each day. That money, with Aramco’s IPO, may be the making of a changed company—and maybe also the country itself.
A Brief History of Aramco
1933: Saudi Arabia’s founder, King Abdulaziz, gives exclusive drilling rights to Standard Oil of California for 60 years, across 320,000 square miles of desert.
1938: American explorers strike the first oil in Dhahran, in the eastern province, after nearly abandoning the search and form the Arabian American Oil Company, or Aramco.
1948: Standard Oil of New Jersey and Socony-Vacuum take stakes in Aramco, which evolved into a joint operation between Exxon Mobil and Chevron.
1957: Geologists reveal the mammoth size of Ghawar, in Saudi Arabia’s eastern desert. It remains by far the world’s biggest conventional oilfield.
1980: The Saudi government buys Exxon Mobil’s and Chevron’s stakes in Aramco and renames it the Saudi Arabian Oil Company.
2018: Saudi Arabia has announced plans to sell 5% of Aramco next year in potentially the biggest-ever IPO. But will the Saudis actually go through with it?
A version of this article appears in the Nov. 1, 2017 issue of Fortune with the headline “Inside the Kingdom of Oil.”