What Saudi Aramco’s Bond Prospectus Reveals About Its Oil Reserves

On Sunday night, the Saudi Arabian national oil company, Saudi Aramco, released its bond prospectus ahead of roadshows in New York and London. The company recently agreed to purchase Saudi petrochemicals company SABIC for $69 billion and is selling $30 billion in bonds for the down payment on this purchase. The bond prospectus reveals new financial information and more about the largest oil company in the world.

We already knew that Aramco was the most profitable company in the world, but we now know that in 2018, Aramco’s earnings before interest, tax, depreciation and amortization were $224 billion. Its net income in 2018 was $111 billion. In comparison, Apple’s (NASDAQ:AAPL) net income in 2018 was about $60 billion and ExxonMobil’s (NYSE:XOM) was about $21 billion.

Analysts have been scouring the 400+ page bond prospectus for information on Aramco’s current and future oil and gas production and the insights this information could provide to markets. However, there is fairly little in this prospectus to give us a sense of Aramco’s coming production numbers in a week, a month, a year, or ten years. Nevertheless, an article was published on Tuesday claiming that Aramco’s supergiant oilfield Ghawar is “fading faster than anyone guessed,” and it helped move oil prices higher.

The article incorrectly asserts that capacity at Ghawar field has dropped, though we do not know this to be true. Ghawar has long been the largest and most productive oilfield in the world, and the article accurately states that it produced 5 mbpd as recently as 15 years ago. It is the most famous oilfield and it is seen as a staple of oil production in the industry, so any news that it is getting old and declining sparks fear of “peak oil” among traders.

In truth, the Aramco bond prospectus provides little information about Ghawar’s current or future production. The only information it does provide is in the form of something called the “MSC.” This term is refers to the capacity that Aramco is required by law to be able to access within a three-month timeframe.

The Saudi Hydrocarbons Law sets the total Saudi MSC at 12 million bpd. In other words, Aramco must be able to ramp up production from whatever level it is producing to 12 million bpd in just three months time, and Aramco must be able to hold the 12 mbpd level for one year. In accordance with this requirement, Aramco breaks down that production by field. So, if for some reason it becomes necessary for Aramco to increase production to 12 million bpd, Ghawar field’s responsibility is to produce 3.8 million bpd.

Ghawar might be producing at that level now, or it could be producing less. The MSC number for Ghawar is not necessarily a maximum capacity. The prospectus simply indicates that in the scenario in which the government calls for Aramco to produce 12 mbpd, Ghawar would be responsible for 3.8 mbpd, almost 1/3 of the total, far more than any other field. It makes sense that Ghawar would be producing less oil than it once had—even if it is still capable—because Aramco has more options now.

For those who are wondering about the depletion rates for Aramco’s oil fields, the prospectus also indicated that half of Aramco’s reservoirs are less than 20% depleted. Ghawar still accounts for 21.3% of Aramco’s liquid reserves.

Should we be concerned that the world’s largest source of oil is being depleted faster than we thought? Perhaps, but the information released by Aramco does not shed any light on that subject nor provide any new information.

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