Being primarily state-owned, Saudi Aramco, also known as Saudi Arabian Oil Company, is the world’s biggest oil producer and one of the largest companies in the world by revenue as of 2020. It is officially headquartered in Dhahran, Saudi Arabia, and has the world’s second largest proven crude oil reserves with around 270 billion barrels and the largest daily oil production of all oil producing companies in general. This makes it the world’s most profitable company even when compared to technology giants like Apple Inc. (AAPL) and Alphabet Inc. (GOOGL).

Investors began to increasingly pay attention to Saudi Aramco in 2018 when Saudi Crown Prince Mohammed bin Salman announced his plans for listing 5% of Aramco at a valuation of approximately $2 trillion, which became the largest initial public offering (IPO) ever.

What does Saudi Aramco do? Important details
Saudi Aramco is considered a leading producer of the energy and chemicals that drive global commerce and enrich peoples’ everyday lives. The company achieved this by continuously delivering an ongoing supply of energy to the world. Their agile approach has built one of the world’s largest integrated energy and chemicals companies and they are also part of the global effort towards building a low carbon economy.

Saudi Aramco operates the Master Gas System which is the world’s largest single hydrocarbon network. While crude oil production was 3.4 billion barrels in total during 2013, the company manages more than one hundred oil and gas fields in Saudi Arabia as well as 288.4 trillion Standard Cubic Feet (SCF) of natural gas reserves. The company also operates the Ghawar Field which is the world’s largest onshore oil field, and the Safaniya Field, the world’s largest offshore oil field.

It is worth stating that Saudi Aramco shares began to be traded on the Tadawul stock exchange on 11 December 2019. The shares increased to 35.2 Saudi riyals, which resulted in market capitalisation of about US$1.88 trillion. During the 2020 Forbes Global 2000, the company was ranked 5th as the largest public company around the globe. In March 2021, however, Saudi Aramco announced that 2020 earnings decreased by nearly 45% compared to 2019 as the lockdowns caused by the COVID-19 pandemic resulted in limited oil demand worldwide.

The company’s history
Saudi Aramco was created from a Concession Agreement between the Saudi Arabian government and the Standard Oil Company of California (SOCAL) in 1933. Shortly after this, Aramco began operating with its first commercial oil production taking place in 1938. In the next few years, there was a rapid expansion of the company across Saudi Arabia, reaching crude oil production of 500,000 barrels per day in 1949. In the effort to keep up with such big numbers, the company expanded its distribution pipeline which resulted in the creation of the Trans-Arabian Pipeline, which is considered to be the longest in the world.

As stated at the beginning of this article, Saudi Arabian Oil Company was primarily state-owned. In fact, in 1973, the Saudi Arabian government purchased a 25% interest in Aramco which gradually increased to 100% by the end of 1970. In 1980s, the Saudi Arabian Oil Company was officially established and in 1989 there was an effort to switch from being an oil-producing and exporting company to being an integrated petroleum enterprise. For this purpose, Aramco built a joint venture with Texaco in the United States. By 2017, the Saudi oil giant was the only owner of North America’s largest single-site crude oil refinery at Port Arthur, Texas.

In the 1990s, the company continued collaborating and partnering with more and more parties around the globe. Quite recently, the company has tried to diversify its operations through heavily investing in research and development (R&D) so as to expand into non-metallic and crude-to-chemicals products. Presently, the president and CEO Amin H. Nasser leads Saudi Aramco while Yasir Al-Rumayyan is the Chair of the company.

How was Saudi Arabia involved in Saudi Aramco?
Saudi Arabia is greatly involved in Aramco primarily because as a former state-owned entity the government of Saudi Arabia takes a significant portion of its earnings. The oil company actually pays a large tax rate of 50% to the Saudi Arabian government which used to be 85% before 2007.

The connection between Aramco and the Saudi government has brought a lower rating than what was expected of such a firm. Moody’s, the American Investors Service that provides investors with credit ratings, risk analysis, and research for stocks, bonds, and government entities, has attributed its A1 rating for Aramco, below Chevron and Exxon.

As Moody’s senior credit officer Rehan Akbar wrote, “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,”.

Saudi Aramco earnings
Aramco had a net income of $88 billion in 2019 compared to $111 billion in 2018. This was attributed to lower crude oil prices and production volume and declining margins and defects as well. Free cash flow reached $78 billion, compared to $86 billion in 2018. The fall was a result of the lower income.

However, the profits for 2019 at $88 billion in total, are significantly bigger than the annual $16.5 billion profits of their competitor, the Royal Dutch Shell (RDS.A), which is the largest publicly-traded oil company after Aramco. When compared to Apple, Royal Dutch Shell generated $55 billion in profits in 2019 which is a little more than half of Saudi Aramco’s profits in 2019.

Since the company was under Government ownership towards the end of 1970, Saudi Aramco’s financials had not been available to the public. The oil company’s financial information was made available in a brochure tied to a $10 billion bond sale in 2019.