Just in case you thought it was an April Fool’s joke, it wasn’t. On April 1, 2019, Saudi Arabia-based oil giant Saudi Aramco toppled Apple of all companies to emerge as the most profitable firm in the world. The development came in the wake of the company revealing its financial statements for the first time ever and stunning financial markets.
Saudi Aramco posted a profit of $111.1 billion, while Apple came second with $59.1 billion; they were followed by Samsung and Alphabet at $35.1 billion and $30.7 billion, respectively.
Digging into Saudi Aramco’s roots
According to Saudi Aramco’s official website, “the company traces its beginnings to 1933, when a Concession Agreement was signed between Saudi Arabia and the Standard Oil Company of California (SOCAL). A subsidiary company, the California Arabian Standard Oil Company (CASOC), was created to manage the agreement”.
At that time, nobody really knew if the Ibn Saud-ruled Saudi Arabia had any oil. After four years of failure to find it, CASOC started drilling in well number 7 at Dammam. The explorists drilling were expecting yet another dead end, but chief geologist, Max Steineke, insisted that the SOCAL employees carry on. His persistence bore fruit, leading to the discovery of the first oil field in Saudi Arabia; it changed the country from being a mere desert to one of the most important energy centres across the world.
Well number 7 was renamed Prosperity Well, and soon, oil production began to rise exponentially. The world’s longest 1,212-km Trans-Arabian tap line took shape to connect Saudi Arabia to the Mediterranean Sea, for enhancement of exports via faster delivery and lower costs.
In 1944, CASOC became ‘Arabian American Oil company’, aka Aramco. Over the next few decades, the company grew from strength to strength. Formation of the Organisation of Petrol Exporting Countries (OPEC) in 1960 paved the way for global influence on oil prices; the US and Russia were disallowed from being its members.
In 1973, the Saudi Arabian government bought a 25% stake in the company. The government, as part of a strategic decision, nationalised the company in 1980. After eight more years, the company became ‘Saudi Aramco’. Today, it delivers nearly 10% of the world’s oil.
Why the big reveal now?
A question then arises: what prompted the company to reveal its financial statements after so long? The answer is government regulations.
According to a Bloomberg report, the company is planning to raise debt up to $10 billion. The success of the debt issue is very important to banks like JP Morgan, because the company wants to lists its IPO (Initial Public Offering) at the New York Stock Exchange in the near future.
The company had decided to put up 5% of shares, which easily would have been the biggest IPO ever, but the plan was scrapped. The money raised from the bond issue will be used to acquire a majority stake of a domestic petrochemical company Sabic.
Saudi Aramco wants to reduce its dependency of revenues from crude oil to other businesses. Crown Prince Mohammed Bin Salman is floating the bonds as part of the VISION 2030 plan, in which he wishes to diversify the Saudi Arabian economy and make Saudi Aramco, in particular, more influential in the financial world. That’s why the Sovereign Wealth fund of Saudi Arabia is investing heavily in Uber and Tesla.
With $22 billion in cash and cash equivalent in tandem with strong financials, it is expected that the company will soon go on a shopping spree.
What’s in store for India?
According to Reuters, major companies are targeting Asian countries due to their increasing demand for oil. And Saudi Aramco is among them. Along with UAE national oil company ADNOC, it collaborated with Indian refiners last year on a plan to build a 1.2-million barrel per day refinery and petrochemical project in Maharashtra.
Currently, Saudi Aramco is trying to find opportunities in the Indian market to expand further. CEO Amin Nasser has even gone on air to say that India is on its priority list in terms of investment.
“We are looking at additional investment in India so we are in discussions with other companies as well, including Reliance,” Nasser told reporters at an industry event in Delhi this February.
With petrochemicals giant Mukesh Ambani-led Reliance Industries being Saudi Aramco’s stiffest competition in the industry, reports have hinted at a joint investment between the two companies.
India is the world’s third-biggest crude oil consumer with a demand of 4.7 million barrels per day, show government figures.
Hemant Agarwal is a writing analyst at Qrius