Bloomberg News revealed the first ever performance numbers for Aramco, the Saudi Arabian oil giant. Aramco is the backbone of the global economy, producing as well as selling about $10 million barrels of oil per day. For the last 40 years, the financial performance of this behemoth has been kept secret. Only a tiny circle of the company’s executives, the Saudi government and princes have known about how the company has been performing.
Now, however, the company finally shared its performance data for 2017 with Bloomberg Finance. According to the data that the company shared, Aramco made $33.8 billion in terms of net income in the first 6 months of last year. This number leaves the “giants” of the west such as Apple Inc., ExxonMobil Corp. and JP Morgan Chase & Co. trailing far behind.
And now, thanks to the data provided to Bloomberg by Aramco, investors and analysts can actually assess the approximate value of the once-in-a-generation event about to take place – the proposed Initial Public Offering (IPO) of the oil giant. And since Aramco also is the entity that generates the majority of Saudi Arabia’s wealth, it finally gives the world an insight into the financial health of the country’s economy.
Some of the most striking aspects of these numbers is that they show that Aramco is almost completely debt free and production costs are just a fraction of what the industry standards are.
Unfortunately, the fact that this company is almost solely responsible for the kingdom’s wealth coupled with the irresponsible spending habits of the numerous princes places a heavy burden on the company. The oil giant is responsible for the majority of military as well as social spending in the country. It also supports the lavish lifestyles of the princes of Saudi Arabia.
This will play an important role in impacting the value of the IPO that the oil company is planning. If so much of its funds goes into supporting the country, then the dividend payout for the company’s investors will be correspondingly lower, which means that people may be put off from investing in the IPO.
The numbers, which have been prepared according to IFRS (International Financial Reporting Standards) also give insights into how the company is impacted by the change in oil prices. For example, in the first half of 2016, crude oil was selling at an average of $41 per barrel. At that time, Aramco’s net income totaled $7.2 billion. However, this year, oil prices are much higher after the recent rally in the industry, taking the price to $70 per barrel, meaning the company’s net income should also be that much higher.
The Crown Prince Mohammed bin Salman has made Aramco a crucial part of his plans to drag Saudi Arabia out of its dependence on oil. And he has suggested that the approximate value of Aramco would be $2 trillion. This means that if the company were to put up just 5% of its shares to be sold in an IPO, then the company would raise a record-breaking $100 billion from the event.
Currently the largest fund-raising IPO was Chinese tech giant Alibaba’s, wherein the company raised a whopping $25 billion in its IPO in 2014.
However, there are sceptics in the industry who believe that a valuation of $2 trillion is unrealistically high. Researchers such as Sanford C Bernstein and Rystad Energy AS doubt the $2 trillion valuation, and feel that a $1 trillion to 41.5 trillion valuation is more realistic.
When asked for a statement with regard to its financial health and the numbers, the company denied their validity.