Saudi Aramco reported earnings of US$111 billion ($171.5b) for 2018. Photo / AP
Saudi Aramco, the world's largest oil producer, is set to shed new light on its financial health Monday, a revelatory moment for the highly secretive, state-controlled company.
The most intriguing thing the oil giant may disclose in the process involves its plans, including whether it will finally try to become the world's biggest publicly traded company.
Until April, Saudi Aramco had never shared how much crude it pumped and how much money it made. When it did — reporting earnings of US$111 billion ($171.5b) for 2018 in the run-up to its first-ever bond sale — investors snapped to attention: The company's results made it more profitable than Exxon Mobil and Apple.
When Aramco executives present a half-year earnings report for bond investors Monday, they will have another opportunity to impress the global market with the company's vitality and its potential for raising money that can help Saudi Arabia diversify its economy.
The report could also help Aramco test the waters for its much-discussed but long-delayed public offering.
Teams of bankers, including senior executives from advisory firms like Moelis & Co., have recently been meeting with company and kingdom officials in discussions that could revive the listing, according to people with knowledge of the matter who spoke on the condition of anonymity to describe private conversations. The Aramco board also held a meeting in Boston this week.
For Aramco, the efforts at financial transparency are a significant change. Releasing detailed figures on topics like earnings, reserves and payments to the government is "a huge difference from where things stood even a couple of years ago," said Sadad al-Husseini, a former executive vice president at the company.
The new approach has been prompted partly by worries over the long-term prospects for Saudi oil. The value of the kingdom's vast reserves is threatened by various factors, including a shale-oil boom in the United States that has depressed prices and broader concerns about fossil fuels' role in climate change.
Mohammed bin Salman, the Saudi crown prince and the country's main policymaker, has ambitious plans to reduce the economy's overwhelming dependence on oil, but achieving his vision of new cities and industries will require immense sums of money.
That is where Aramco fits in. The crown prince wants the company, Saudi Arabia's main economic asset, to be a magnet for attracting international investors, including through a public sale of shares. He may also be counting on a public offering to provide some distraction from the fallout caused by his ties to the killing last year of Saudi journalist Jamal Khashoggi.
A formal process for picking banks to advise an offering is expected to begin in earnest next month, according to a person briefed on the matter. Banks that worked on the last set of preparations and are expected to make a pitch for roles on the revived listing include Moelis, JPMorgan Chase, Morgan Stanley and HSBC.
Representatives for the banks declined to comment.
Last year, Aramco abruptly suspended a plan to go public in an offering the crown prince hoped would value the company at US$2 trillion. It chose instead to acquire a majority stake in a petrochemical company, Saudi Basic Industries Corp., or SABIC. In April, Aramco held the bond sale to help finance that acquisition. Saudi officials have said since then that there was a chance the stock offering could be revived.
Many of the questions about a public offering that confronted Aramco in the past have not been resolved, including which global stock market its shares would be listed on and how they should be valued.
Aramco's new openness has attracted the attention of Wall Street analysts who had largely ignored the company in the past because of its secrecy. Oswald Clint, an oil analyst at the research firm Bernstein, said he expected to listen to an analysts' call that Aramco has scheduled for Monday and to write a brief report.
Still, Clint said, Aramco, despite its enormous profits, would be "a tough sell to investors" in what is a skeptical climate for oil companies.
Among the biggest questions an Aramco listing would raise is the outsize role played by the Saudi government, the sole shareholder. Officials have discussed plans to sell only 5 per cent of Aramco in a public offering, meaning that whatever returns investors got would be completely dependent on the government. The company's 11-person board includes five senior government officials.
At the moment, Aramco has substantially curtailed production, on government orders, to prop up weak oil prices. If the government needed more money, the company could also increase its dividend. Aramco paid the Saudi government US$58b in dividends last year.
"Potential investors realise that they would have no control over Saudi Aramco strategy," said Ben Cahill, research director at Energy Intelligence, a market research firm.
The stigma of Khashoggi's killing could also scare off some potential investors.
The souring global economic environment may also work against a possible offering. Oil prices — about US$59 a barrel for the Brent bench mark — have edged down in recent weeks despite the big production cuts by Saudi Arabia and other producers.
The cuts were mostly driven by increasing supplies of crude from US shale-oil producers and fears that President Donald Trump's trade war would hurt economic growth and reduce demand for oil.
As the company made clear in its April report, its financial results are highly sensitive to movement in oil prices. In the low-price environment of 2016, it earned only about US$13b, much less than in 2018.
The geopolitical environment also appears less welcoming these days. In recent months, tankers traversing the Persian Gulf, where Saudi Arabia is the largest exporter, have been attacked and seized. The growing tensions between the United States and Iran expose the Saudis, who have sided with Washington, to added risks.
"The gulf has taken a nose-dive," in terms of its reputation as a place to do business, said Bill Farren-Price, a director of the research firm RS Energy Group.
Written by: Stanley Reed and Michael J. de la Merced
Photographs by: Christophe Viseux
© 2019 THE NEW YORK TIMES
This recovery is making us sweat, but that might be a good thing in the long run.