Sunday, 21 July, 2019

Saudi Aramco is big, just not big enough

Saudi Arabia's Crown Prince Mohammed bin Salman speaks during a meeting with Indian Prime Minister Narendra Modi at Hyderabad House in New Delhi Apple may have never been the world's most profitable company
Russell Knight | 05 April, 2019, 17:23

Saudi Arabia is home to the largest oil fields in the world (including Ghawar, which stretches 120 miles) - a luxury that helps companies like Aramco produce oil at a massive discount.

"Fluctuations in the price at which the company is able to sell crude oil could cause the company's results of operations and cash flow to vary significantly", Aramco said.

That is now shifted beneath King Salman and his son, Crown Prince Mohammed bin Salman, who have taken a more active part in controlling different power centres in the kingdom, such as Aramco, Wald said. By contrast, Apple booked a net profit of about USD60 billion in its last full year, Royal Dutch Shell had net income of USD23 billion and Exxon Mobil USD21 billion.

Now, the company has released its numbers as it prepares for a $15B bond sale, which the company plans to use to finance nearly a $70B stake in Saudi Arabia's petrochemical company.

Under the umbrella of Saudi Aramco, SABIC's CEO Yousef Al-Benyan believes the company can become a world leader in the chemicals industry.

Aramco, which emerged as the most profitable company earning $111 billion in 2018 - beating the likes of Apple and Google - said it had acquired 70 per cent of Sabic's shares, the largest petrochemicals company in the region.

Fitch Ratings, which also saw the accounts, said Aramco reported $224 billion in earnings before tax and depreciation, while maintaining low debt levels.

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The ratings agencies issued their reports on the same day that Aramco said it will start to meet with investors about selling its bonds which, if issued, would be priced in dollars and traded on the London Stock Exchange.

Aramco estimates its proved liquids reserves at 227 billion barrels and its total hydrocarbon reserves at 257 billion barrels of oil equivalent for half a century, a high and comfortable level by global standards, announced Fitch.

However, it does not match up to global oil companies in terms of cash generated per barrel, according to data from Fitch Ratings.

The SABIC deal will be completed in 2020, Aramco said separately in the prospectus, adding it will fund half of the acquisition with promissory notes issued to the PIF.

Aramco told potential bondholders it generated operating cash flow of $121 billion in 2018.

Moody's said that considering Aramco has a substantial cash flow generation capacity, it can fund the SABIC deal without the need to borrow.

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