Saudi Aramco reveals its financials — and more secrets

Another day, another Saudi headline — but one far different from the usual riff about the murder of journalist Jamal Khashoggi, the war in Yemen, the crown prince known as MbS, or the kingdom’s imprisoned women activists: The state-owned oil company Saudi Aramco made more profit last year than any other company in the world.

According to the Wall Street Journal, its net income (profit to you and me) was $111 billion. Before taxes and other expenses it made $212 billion.

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Reaching for comparisons, the Journal said the revenue figure was similar to the combined military budgets of the 28 members of the European Union. The Financial Times reported that the profit was almost double that of Apple and five times that of rival oil company Royal Dutch Shell.

The mind boggles, but the one-line explanation is simple: It is very easy (therefore, cheap) to find oil in Saudi Arabia, costing around $3 to $5 per barrel, so when you are producing around 10 million barrels per day and can sell it for $60-plus per barrel, you earn a lot of money.

We didn’t know the profit figure before because Saudi Aramco was secretive. What is different now? Saudi Aramco wants to borrow money. Unless you work in Wall Street or otherwise are financially savvy, your jaw is probably dropping. But the explanation has logic and is also revealing.

The oil company needs the money to buy a chunk of the state-owned petrochemical giant, Sabic (the Saudi Basic Industries Corporation). Currently, Sabic is owned by the state-owned Public Investment Fund (PIF) but Saudi Aramco has announced that it is going to buy 70 percent for around $69 billion. To help pay for it, the oil company wants to issue $10 billion worth of bonds, which it hopes that foreign investors will buy. Such investors like to know what they are paying for; hence, the publication of financial details.

Another way of looking at the development is that Saudi Arabia needs to raise money to fund its ambitious infrastructure programs, including the Red Sea Neom project and making central Riyadh into a giant green area, multiples the size of Central Park. It had hoped to sell off a portion of Saudi Aramco to create the cash but couldn’t do it because the world wasn’t interested in paying the asking price of $100 billion. So Saudi Aramco is buying a bit of Sabic and wants the world to help by giving it $10 billion. Meanwhile, the PIF nets $69 billion. In accounting terms, it is very much an internal book transaction. In lay person’s language, it is mainly taking money out of one pocket and putting it into the pocket on the other side.

People with good memories may recall that two years ago when Crown Prince Mohammad bin Salman (MbS) announced his Vision 2030, the underlying logic was shifting the Saudi economy from its reliance on oil, the fuel of the past. That is less emphasized these days, to the point of not being mentioned. People picky with details may note the proposed debt issue is for a 30-year bond. That’s not to say that the kingdom has radically reassessed its view of its oil future, but it does add nuance.

While foreign companies previously attracted by investment possibilities in MbS’s reshaping are cautious, at least in reputational terms, post-Khashoggi’s murder, financial types are less sniffy.  But, as the Financial Times puts it, the exercise “will provide a test of fund managers’ willingness to back a company intrinsically connected to the development of the Saudi state.” The PIF is expected to use its $69 billion, in the words of the Wall Street Journal, “to drive Prince Mohammad’s agenda.”

The Saudi Aramco headline was rivaled in the Washington Post by the news story about Khashoggi’s children being paid money by the Saudi government to stop them (apparently successfully) from talking about their father’s demise six months ago. The Post wrote that more money is in prospect once the trials of those accused of his murder and dismemberment are over.  The world moves on — or, does it?

Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy. Follow him on Twitter @shendersongulf.