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Aramco More Resilient To Oil Price Drop Than Listed Competitors

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Saudi Aramco is able to better withstand a slump in oil prices, judging from its 2016 financials that Reuters has seen—financials for the year in which the price of oil hit a 12-year-low and plummeted to below $30 a barrel at one point.

According to Aramco’s 2016 financials—figures that the company has never publicly disclosed but that Reuters has seen—the Saudi state oil giant booked a net income of US$13.3 billion in 2016, down by around 21 percent compared to 2015.

To compare, the world’s biggest listed oil company, ExxonMobil, saw its earnings plunge by 51 percent on the year in 2016—to US$7.8 billion.

According to industry experts quoted by Reuters, Saudi Aramco is more resilient to an oil price plunge because it has very low production costs, because most of its operations are concentrated in Saudi Arabia, and because it has fewer employees than others although it produces much more oil compared to its listed competitors. Production costs in Saudi Arabia could be as low as US$1 a barrel, compared to US$10 a barrel in Russia and up to $30 a barrel in the North Sea, for example.

In terms of cash flow, Aramco also did well, according to the 2016 financials prepared under IFRS standards and at the 85-percent tax rate at the time that Reuters has reviewed.

Related: Aramco Looks To Launch New Oil Price Benchmark

Aramco’s net cash flow from operations increased by 21 percent to US$29 billion in 2016. Exxon, which reported the highest cash flow among the listed competitors that year, saw its net cash flow from operations drop to US$22.1 billion from US$30.3 billion in 2015.

In April, Bloomberg reported that Aramco generated a stunning US$33.8 billion in net income for the first half of 2017—higher than the combined net incomes for H1 2017 of ALL of Big Oil’s five—Exxon, Shell, Chevron, Total, and BP.

Yet, despite all these mind-blowing figures, it looks like the much-hyped initial public offering (IPO) of the Saudi oil giant may not happen at all, with growing speculation that the listing is stalled.

By Tsvetana Paraskova for Oilprice.com

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  • Bonaventure Stephen Gomes on July 10 2018 said:
    I would beg to differ with the production costs in Saudi Arabia. The costs would be around US$15.00. While direct employees may be around 65,000, Saudi Aramco has a humongous number of indirect employees including, but not limited to Supplementary Manpower, Project Management Teams, and their contractors. You can safely add another 100,000. However, in my assessment, net profits after depreciation, taxes, etc. Saudi Aramco's net earnings can be placed at approximately US$15 billion based on the assumption of oil prices averaging US$50 while net earning may almost double to US$29 billion based on oil prices averaging US$75. The half-yearly earnings for 2017 is a far bit too stretched. Just a note of caution, I have not considered their earnings on sales of gas, and chemicals. Unlike Exxon-Mobil, BP, Shell and other leading oil & gas companies, Saudi Aramco does not engage in drilling operations outside its territories while It may invest in crude oil, gas, and chemical refineries. Saudi Aramco, even in its domestic operations, is heavily dependent on leading oil & gas services companies including, but not limited to, Schlumberger, Arabian Drilling, Halliburton, etc. and project management contractors as Worley-Parsons, Jacobs, Brown & Root, etc. From drilling a hole in the ground to drilling a hole in the wall, Saudi Aramco is contractor-dependent. In fact, Saudi Aramco is highly overstaff ten times over.
  • Aghast on July 09 2018 said:
    2016 non oil revenue was 38% for SA leaving 62% of their budget reliant upon oil prices and production.

    SA ran a 300 billion plus deficit in 2016
    delayed payments to contractors
    cancelled projects
    austerity for the people, profit for the takers.
    How regal!

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