The Strategist

Saudi Aramco’s profit is more than that of Apple and Exxon combined

04/03/2019 - 12:34

Aramco revealed its account ledgers and surprised economists. In 2018, profit of the “pearl of the Arabian crown” amounted to $ 111 billion, which is more than profit of Apple and Exxon Mobil together.

Aramco's earnings were disclosed in the course of preparation for purchase of a 70 percent stake in Saudi oil refining company Saudi Basic Industries Corp. (Sabic) for $ 69.1 billion. Riyadh plans to sell bonds of at least $ 10 billion.

In addition, Riyadh hopes to calm investors' doubts about seriousness of the kingdom’s intentions to hold an Aramco IPO in 2021. This, for sure, will be the largest initial public offering in history.

Heir Prince of KSA, Mohammad bin Salman, hopes to receive tens of billions of dollars from Aramco’s IPO, which he first announced at the beginning of 2016. Prince plans to use the money to build cities of the future, diversify the kingdom’s economy, which is completely dependent on oil, and finance a number of non-energy sectors such as high technology.

Aramco's total revenue in 2018 increased sharply compared with the previous year, when it was $ 75.9 billion. For comparison: Apple's annual income is approx. $ 60 billion dollars, Amazon earns $ 10 billion, and Exxon Mobil - $ 21 billion.

It should be borne in mind that Saudi Arabia has high corporate taxes, which amount to about 50%. Aramco also pays royalties to the state in the amount of 20% of revenues at an oil price of up to $ 70 per barrel. Moreover, royalties grow together with rising oil prices. According to Fitch Ratings, Aramco’s share in the kingdom’s income in 2015–17 reached 70%. Before taxes and other expenses, Aramco's income was $ 212 billion, which roughly corresponds to military budgets of all 28 EU members combined.

In 2016, when oil prices were low (in January, an average of $ 31.9 per barrel), Aramco's profit was significantly lower - $ 13.2 billion

Back in 2016, when Aramco’s planned IPO was announced, some economists thought the company could be worth about $ 2 trillion. Now, after the financial data for three years was published, it can be argued that the minimum cost of Aramco will be at least $ 1.5 trillion with the price of oil at $ 70 per barrel.

JPMorgan Chase & Co. and Morgan Stanley will organize and conduct the offering. Sales will take place in at least eight cities in the United States, Europe and Asia. An independent advisor to the sale of bonds is the investment bank Lazard.

Aramco also received a credit rating for the first time. On the eve of the sale of bonds, the company was assigned an A + rating, the same as that of KSA government bonds.

Moody’s assigned an A1 to the oil company. To compare, Exxon has a AAA rating, i.e. the highest. Exxon credit ratings are higher, because Aramco has them tied to government bond ratings and cannot be higher.

Aramco is not only the most profitable company on the planet. It also produces more oil than other oil giants. In 2018, the total hydrocarbon production averaged 13.6 million barrels per day.


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