Saudi Aramco is the world's largest oil producer. Officially known as Saudi Arabian Oil Company, the company is primarily state-owned and is based in Dhahran, Saudi Arabia. It is the world's most profitable company, eclipsing even tech giants such as Apple (AAPL), and Microsoft (MSFT).
The world got a sneak peek of this long-secretive company's financial snapshot after credit rating agencies released financial details about Saudi Aramco in April 2019 just before its debut international bond sale, which raised $12 billion.
Before going public in 2019, Saudi Aramco attracted investor attention in 2016 when Saudi Crown Prince Mohammed bin Salman bin Abdulaziz Al-Saud announced plans to list 5% of the company at a valuation of approximately $2 trillion. It would be the largest-ever initial public offering (IPO).
Key Takeaways
- Saudi Aramco is the world's largest oil producer and the world's most profitable company.
- The company began drilling for oil in 1938.
- It is primarily state-owned but raised $29.4 billion in a 2019 IPO and a greenshoe option in 2020.
- Moody's rated the company an A1 because of its credit links to the Saudi government.
History of Saudi Aramco
Saudi Aramco was established following a concession agreement between the Saudi Arabian government and the Standard Oil Company of California in 1933. The company began primary drilling operations shortly after, commencing its first commercial oil production in 1938.
Saudi Aramco expanded rapidly across Saudi Arabia over the next decade, reaching crude oil production of 500,000 barrels per day in 1949. To keep up with production, the firm built out its distribution pipeline and built the Trans-Arabian Pipeline—the longest in the world.
In 1973, the Saudi Arabian government purchased a 25% interest in the company and gradually increased its stake during the decade. By 1980, the government owned 100% of the company.
The Saudi Arabian Oil Company was officially established in 1988. Throughout the 1990s, it built global alliances and partnership deals. The company also began investing heavily in research and development (R&D) to expand into nonmetallic and crude-to-chemicals products.
Amin H. Nasser is the lead executive of Saudi Aramco, serving as the company's president and chief executive officer (CEO). He also sits on its board of directors, which is headed by Chairman Yasir Othman Al-Rumayyan.
By 2017, the Saudi oil behemoth became the sole owner of North America’s largest single-site crude oil refinery at Port Arthur, Texas.
Saudi Aramco's IPO
Plans for the company's public debut stalled for some time as some analysts argued that the company’s real value was far lower than the crown prince's $2 trillion valuation. There were also uncertainties about the response of investors to allegations that bin Salman was a key force behind the murder of The Washington Post journalist Jamal Khashoggi.
Nevertheless, Saudi Aramco went public with its IPO in 2019, raising a record $25.6 billion by selling three billion shares. This was only 1.5% of the company's value—significantly lower than firms like Apple, which has only about 0.10% of its shares in the hands of insiders. Limiting ownership allows Saudi Arabia to remain in control of the company as proceeds from the offering are central to a plan by the Saudis to diversify the oil giant.
Using a greenshoe or over-allotment option, the company bumped up the size of its IPO to $29.4 billion after selling 450 million additional shares. The IPO price valued the company at $1.87 trillion—still below the crown prince's valuation.
Saudi Arabia's Involvement in Saudi Aramco
Since the company is primarily a state-owned entity, the government of Saudi Arabia derives a significant portion of its wealth. In fact, Saudi Aramco pays a hefty tax rate of 50% to the Saudi Arabian government. Before 2017, the tax rate was 85%.
Saudi Aramco's ties to the government resulted in a lower rating than would be expected of a firm of its stature. Moody's rated the company an A1 because of its credit links to the Saudi government. This puts it below peers like Chevron and Exxon.
"While there is a clear track record of Aramco having been run as a commercially independent company, the government’s budget is highly reliant upon contributions from Aramco in the form of royalties, taxes, and dividends," wrote Moody's senior credit officer Rehan Akbar.
In an effort to transform itself from an oil-producing and exporting company to an integrated petroleum enterprise, Aramco formed a joint venture with Texaco in the U.S. in 1989.
Saudi Aramco's Financials
For many years, Saudi Aramco’s financials weren't available to the public since the company was nationalized in the late 1970s. The oil company finally made its financial information available in a prospectus tied to a $12 billion bond sale planned for 2019.
Fiscal 2020 marked Saudi Aramco's second year as a public company. The year was marked by a series of weaknesses in the industry, thanks to the global COVID-19 pandemic. Net income came in at $49 billion for the year, which was a drop from the $88 billion the company reported in 2019.
Low demand and the volatility of energy prices made a huge impact on the company and its bottom line during the year. The second half of the year showed a slight improvement as demand began to pick up.
Aramco's reserves sat at 255.2 barrels as of Dec. 31, 2020. This figure included 198.8 billion of crude oil, 25.2 billion of natural gas liquids. along with 191.6 trillion standard cubic feet of natural gas. Compare this to the reserves of Exxon Mobil, which reported 15 billion barrels—60% oil and 40% natural gas—by the end of 2020.
Despite the challenges, Saudi Aramco continues to remain ahead of its competition. Royal Dutch Shell (RDS.A) reported $4.85 in profits for the fiscal year, compared to $16.5 billion in annual profits for 2019.
After the Pandemic
With the pandemic behind it, Saudi Aramco's fortunes picked up.
The company reported $121.3 billion in net income for 2023, its second-highest number ever. The figure for 2022 was 161.1 billion. The company paid dividends totaling $97.8 billion in 2023, an increase of 30% over the previous year.
What Are the World's 3 Largest Oil and Gas Companies?
As of mid-May 2024, the three largest oil and gas companies by market capitalization are:
- Saudi Aramco, at a market cap of 1.92 trillion
- Exxon Mobil, at a market cap of $536.69 billion
- Chevron, at a market cap of $299.79 billion.
How Much of the World's Oil Reserves Belong to Saudi Aramco?
Saudi Aramco is sitting on about 261.1 billion barrels of crude oil reserves. That's about 10 times the amount controlled by ExxonMobil.
Does the Saudi Government Own Saudi Aramco?
About 1.5% of Saudi Aramco was sold to the public in the company's 2019 initial public offering. The government owns the remaining 98.5% of the company.
The Bottom Line
Saudi Aramco remains the world's largest oil producer in 2024. It's also the world's most profitable company, edging out Apple and Microsoft. Not surprisingly, the Kingdom of Saudi Arabia is looking to diversify its economy to prepare for a post-fossil fuel world. It has made progress, though it hasn't gotten there yet.
