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Saudi Aramco Reports $47 Billion in Earnings, a Drop From a Year Earlier

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The oil giant Saudi Aramco is prepared for an initial public offering, its chief financial officer said on Monday, reviving the prospects for a long-awaited listing that could be a major step toward diversifying Saudi Arabia’s economy.

The state-owned company has been moving toward greater financial transparency as it courts international investors, and the suggestion that it was ready for a public offering came during its first-ever earnings call. The company, the world’s largest oil producer, said earlier in the day that it had generated net income of $46.9 billion in the first half of the year.

Khalid al-Dabbagh, Saudi Aramco’s senior vice president for finance, strategy and development, said the timing of a public offering would be up to the “shareholder” — the Saudi government — and offered scant insight into when such a listing would happen.

“The company is ready for the I.P.O.,” Mr. al-Dabbagh told analysts on the call, adding that Saudi officials would “announce it depending on their perception of what will be the optimum market conditions.”

He also discussed a newly signed memorandum of agreement with Reliance Industries of India, saying that it would enable Aramco to examine Reliance’s books and that a potential deal between the two companies was “at the very, very early stages.”

“India is a large country with large demand, and it’s a growing demand,” Mr. al-Dabbagh added.

Reliance announced earlier in the day that Aramco was set to buy a 20 percent stake in its refining and petrochemical business. The stake in Reliance, estimated to be worth $15 billion, would create a partnership between the Saudi kingdom and India’s powerful Ambani family.

Mr. al-Dabbagh’s comments about the public offering appeared to confirm that Saudi leaders are eager to move ahead with it, although key decisions remain. Earlier preparations for a share sale were set aside last year as the price of oil fell and the Saudis struggled with questions of valuation and which exchange the company would be listed on.

But after a bond issue this year attracted significant interest from investors,  Mohammed bin Salman, the Saudi crown prince and the kingdom’s key policymaker, appears to have decided that officials should resume their preparations for a public offering.

The Saudis also seem to be calculating that international outrage is fading after the killing of the journalist Jamal Khashoggi in Turkey last year by Saudi operatives associated with the crown prince.

In the financial disclosure it released on Monday, Aramco said its net income had fallen 12 percent, from $53 billion in the same period a year earlier, when oil prices were higher. The company also said it had earned $66 a barrel for its oil, 4 percent less than a year earlier.

The results indicated that, even with the decline, Aramco was much more profitable than its oil-producing peers. Exxon Mobil, the largest American oil company, brought in $5.5 billion in the first half of 2019; Royal Dutch Shell, Europe’s largest oil company, reported net income of $9 billion for the first six months of the year.

“Despite lower oil prices during the first half of 2019, we continued to deliver solid earnings,” Aramco’s chief executive, Amin H. Nasser, said in a statement. Disclosing the financial results, he said, was “a significant milestone in Saudi Aramco’s history.”

The company had long declined to disclose key metrics, including how much oil it produces and how much money it brings in. In April, though, it broke precedent and accompanied its well-received bond offering with a detailed prospectus that provided investors a wealth of financial and oil statistics.

Because the bonds are publicly traded, Aramco is now required to publish financial results.

The company also said Monday that it had paid dividends of $46.4 billion, an amount almost equal to its net income figure, to the Saudi government in the first half of the year. Analysts had told investors that the state-owned company did not have a clear policy on dividends.

“So far there is little clarity on how dividends are determined,” analysts at the market research firm Energy Intelligence, wrote in a note to clients last week.

On Monday, analysts at Bernstein, another market research firm, questioned whether Aramco could continue to pay such large dividends. Noting that the company had reported a measure called “free cash flow” of $38 billion for the first half of the year, the Bernstein analysts wrote, “This implies that Aramco is borrowing to pay the dividend, which is unlikely to be sustainable over the long run.”

Aramco said the dividends included an “ordinary” payment of $26.4 billion and a “special” dividend of $20 billion that “reflected the exceptionally strong” performance by the company last year, when it took in $111 billion.

Aramco’s move toward disclosing more information coincides with the company’s becoming increasingly acquisitive, especially outside Saudi Arabia, in ways that could add to its need for more financing. The bonds issued in April were meant to help finance Aramco’s $69 billion acquisition of a government-held stake in Sabic, a Saudi petrochemical company.

The stake in Reliance’s refining, petrochemical and fuel business would help meet Aramco’s goal of locking up markets for its crude oil. With the United States having sharply reduced its imports from the Persian Gulf region thanks to increases in domestic production, suppliers like Kuwait, Iraq and the Saudis are battling over fast-growing Asian markets like India.

The deal between Aramco and Reliance calls for the Saudi company to supply 500,000 barrels a day in crude to the Indian company’s Jamnagar refinery on a long-term basis. Reliance termed the deal a “nonbinding letter of intent,” and said it valued the overall business at $75 billion.

Aramco appears to be filling holes in its portfolio in hopes of more closely resembling companies like Exxon Mobil and Royal Dutch Shell, which have large natural gas and refining businesses to complement their production of crude oil.

Aramco recently reached an understanding with Sempra Energy, a major American natural gas distributor, to buy liquefied natural gas for 20 years and to take a stake of up to 25 percent in a gas-exporting facility Sempra plans to build at Port Arthur, Tex.

Although rich in crude oil, Saudi Arabia has struggled to produce sufficient natural gas to fuel electric power and other industrial businesses. The Saudis wind up burning large volumes of crude during the peak summer season, when demand for electricity for cooling purposes runs at full tilt.

The disclosures by the Saudi company give traders, analysts and competitors greater insight into the workings of a company whose sole shareholder, the Saudi government, influences the oil markets through its de facto leadership of the Organization of the Petroleum Exporting Countries and its coordination of oil policy with producers like Russia.

Aramco said on Monday that it had produced an average of 10 million barrels of oil a day in the first half of the year. That is believed to be much less than it would produce if it had not reined in production in an effort to bolster oil prices, which are now about $58 a barrel for Brent crude, the international benchmark.

NY Times

2 Comments on "Saudi Aramco Reports $47 Billion in Earnings, a Drop From a Year Earlier"

  1. Sissyfuss on Tue, 13th Aug 2019 4:04 pm 

    Smells like the same foul cheese that constitutes the World Ponzi. This is not your fathers economy, unless of course you’re 6.

  2. Gaia on Wed, 21st Aug 2019 6:46 am 

    Saudi Arabia doesn’t care about human rights and prevents people from freely speaking their mind.

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