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Page added on April 14, 2018

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Inside Aramco – The World’s Most Profitable Company

Business

Maybe the Aramco IPO will move forward after all.

In the weeks since Aramco put the word out that it would cancel (or possibly just delay) a foreign offering of 5% of the company’s shares, Saudi Crown Prince Mohammad bin Salman has met with Silicon Valley luminaries, as well as the leaders of the UK, several European countries and – of course – President Trump and his son-in-law, Jared Kushner.

Following this surprisingly well-received tour of the West (surprising considering the many human rights violations the Saudi government is accused of), Bloomberg on Friday published the most comprehensive accounting yet of Aramco’s finances.

According to Bloomberg, this data has previously only been available to Aramco executives and certain members of the royal family.

But it’s release begs the question: Why now? Obviously, these data weren’t just left in a taxi cab for a reporter to find. The leak of this information was almost certainly deliberate. Anybody who has been following the longrunning Aramco saga – a story that has become inextricably tangled with MbS’s ascension to power – will remember that one of the biggest sticking points between KSA and foreign investors was the valuation of Aramco. The Saudi government was pushing for a valuation close to $2 trillion, while some foreign investors believed it could be worth half of that.

Three

Just look at the section of the story explaining Aramco’s capex expenditures as well as its production costs per barrel:

Aramco is also investing heavily. According to the data, the company’s reported capital expenditures were $14.7 billion in the first half of 2017, well ahead of the $8 billion to $9 billion reported in the same period by Exxon and Shell.

There’s plenty to cover investors, however. Aramco produces from some of the largest, lowest-cost fields in the world and spent just $7.9 billion in production and manufacturing costs in the first half of last year, according to the data.

Using a rough measure of total oil, condensate and gas production, Aramco spent less than $4 per barrel to pump hydrocarbons, compared to similarly rough calculations of around $20 a barrel for Exxon and Shell.

These factors have helped cement Aramco’s position as the world’s most profitable company.

Two

While it’s true the Saudi government siphons off a sizable chunk of Aramco’s profits, the company is incredibly efficient. Furthermore, As BBG shows, the company is nearly debt free, with just $20.2 billion in debt as of the end of the first half of 2017. That debt is offset by cash and cash equivalents owned by Aramco worth some $19 billion.

Three

Of course, other details of the story are less flattering:

One stat that might ward off foreign investors is the company’s onerous tax rate: Aramco pays 50% income tax and an additional royalty on its revenue to the Saudi government. And now that oil prices are climbing once again, the Saudi government has introduced a sliding royalty rate that will rise along with prices.

Meanwhile, the dividend, while large, isn’t huge when compared with other industry leaders. Aramco paid a cash distribution to the government of $13 billion in the first half of 2017. That compares with shareholder payouts of $6.4 billion by Exxon and $7.8 billion by Royal Dutch Shell Plc, even though those two combined produce less oil than Aramco.

 

Aramco

The royalty is set at 20% for oil prices up to $70 a barrel, 40% between $70 and $100, and 50% in excess of $100.

The first look at the company’s books since KSA nationalized it in 1976 reveal the amazing deal the House of Saud received: It paid the progenitors of Chevron and Exxon roughly $1.5 billion for what is now Aramco.

Now that these numbers are out in the open, and MbS has finished trotting the globe and returned to KSA, we wouldn’t be surprised to hear in the coming weeks that a foreign listing for Aramco is back on the table. Though it will probably be at least another year before the shares start to trade, this is clearly a trial balloon that investors can’t afford to ignore.

zerohedge



4 Comments on "Inside Aramco – The World’s Most Profitable Company"

  1. Anonymouse1 on Sat, 14th Apr 2018 12:45 pm 

    Farticle says

    “One stat that might ward off foreign investors is the company’s onerous tax rate: Aramco pays 50% income tax and an additional royalty on its revenue to the Saudi government”

    The saudi clan is the owner of both Aramco AND the saudi government. And, a stanch ally of both tel aviv and washingdum. How do you think they pay for all those eye-water weapons deals they ink with the uS? Yes, those nasty taxes they collect from Aramco. Part of that revenue get recycled into uS t-bills, investments in uS holdings, and of course, uS built weapons. That ‘onerous tax rate’, is how they transfer the revenue it generates from one hand to the other. When it comes to stupid, amerikans have few equals.

  2. BobInget on Mon, 16th Apr 2018 9:19 am 

    QuitePeakish

    “In the most recent OPEC Oil Market Report Venezuela’s production fell as expected by 55,300 b/d, taking production down to 1.488 million. The surprise however was that output fell so much elsewhere, including Algeria (-49,500 b/d), Angola (-81,700 b/d), Iraq (-13,100 b/d), Libya (-37,200 b/d) and Saudi Arabia (-46,900 b/d). Should the global supply go into deficit prices would likely go higher despite expectations of higher US shale oil production. “

  3. Boat on Tue, 17th Apr 2018 5:52 pm 

    Bob

    The global supply has been in deficit since they cut production. And prices have gone up close to $25 per barrel since then. It would have happened a lot faster without the US. PS the US just added 125,000.

  4. MASTERMIND on Tue, 17th Apr 2018 6:49 pm 

    Saudi Arabian oil reserves are overstated by 40% – Wikileaks
    https://www.theguardian.com/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    Saudi Aramco chief warns of looming oil shortage
    https://www.ft.com/content/ed1e8102-212f-11e7-b7d3-163f5a7f229c

    Saudi Aramco CEO sees oil supply shortage coming as investments, discoveries drop
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Saudi Arabia ‘may run out of oil to export by 2030’
    https://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9523903/Saudis-may-run-out-of-oil-to-export-by-2030.html

    The collapse of Saudi Arabia is inevitable
    http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679

    Forecasting OPEC crude oil production using a variant Multicyclic Hubbert Model (Ebrahimi 2015)
    https://www.sciencedirect.com/science/article/pii/S0920410515001539

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