Saudi Aramco is the largest integrated oil and gas company in the world. Approximately one in every eight barrels of crude oil produced by company. Company’s refining capacity is fourth largest in the world: gross refining capacity of 4.9 million barrels per day & net refining capacity of 3.1 million barrels per day. Company expects to increase gross refining capacity by Jazan and PRefChem refineries by the end of 2019.
In 1933 the Government granted right to Socal for oil exploration. In the same year Socal incorporated California Arabian Standard Oil Company (CASOC) as a subsidiary. Now the Government of Saudi Arabia own the Company.
Company’s operations divided:
- Upstream operations (inside the Kingdom).
- Downstream operations (outside of the Kingdom).
In 2018 produced 13.6 million barrels per day of oil equivalent:
- Crude oil 10.3 million barrels per day.
- Unblended condensate 0.2 million barrels per day.
- NGLs 1.1 million barrels per day.
- Natural gas 8.9 billion standard cubic feet per day.
- Ethane 1.0 billion standard cubic feet per day.
As per 31 December 2018, Company’s reserves (fields where the Company permitted to operate) included oil equivalent 336.2 billion barrels:
- Crude oil 261.5 billion barrels.
- NGLs 36.1 billion barrels.
- Natural gas 233.8 trillion standard cubic feet.
Saudi Aramco granted exclusive right to explore, develop and produce hydrocarbon resources for 40 years and could be extended for 20 years. There’s available a few excluded areas (the boundaries of Holy Mosques, predefined territories between Kuwait and Saudi Arabia, the common zone in the Red Sea).
According to Report average upstream lifting cost $2.8 per barrel of oil equivalent. Company’s upstream capital expenditure is $4.7 per barrel of oil equivalent. Such a low cost based on geological formations, shallow water offshore environment, large infrastructure and logistics network. Company own and operate extensive network of pipelines.
Company’s downstream operations strategically located outside of the Kingdom. downstream operations provides an opportunity to secure crude oil demand by selling to international wholly owned and affiliated refineries. The Company in high growth markets like China, India, Southeast Asia, South Korea, Japan, etc. Company’s chemical net capacity is 16.8 million tonnes per year and gross capacity 33.2 million tonnes per year. Company’s chemical business include aromatics, olefins, polyolefins, polyols, isocyanates, synthetic rubber, etc.
Saudi Aramco is reliable crude oil supplier with 99.8% delivered obligations on time. This is possible because of providing reliable crude oil supply to customers. In resent years the Government of Saudi Arabia doing everything to diversified oil dependent economy.
Company classified crude oil into 5 categories based on sulphur content (crude oil with low sulphur content has higher value):
- Arabian Super Light (0.8% of crude oil reserves).
- Arabian Extra Light (12.3% of crude oil reserves).
- Arabian Light (34.3% of crude oil reserves).
- Arabian Medium (17.7% of crude oil reserves).
- Arabian Heavy (34.9% of crude oil reserves).
Saudi Aramco main risk factors based on report:
- International oil prices.
- Price on which Company able to sell oil. Also important market price expectations.
- Supply and global demand for hydrocarbons and hydrocarbon-based products.
- International commodity market.
- Fluctuation in value of US dollar.
- Possible operational risks (crude oil or gas spills, pipe leaks, power shortage, equipment failure, logistics interaction, weather conditions, etc).
- Substantial part of crude oil and refined products sold to customers from Asia.
- Equipment depreciation cost.
- Company’s financial results may not be easy compared from year to year because of changes in income tax rate (income tax applicable on Saudi Arabia Oil Company reduced from 85% to 50% in 2017), payable royalties (recorded as an expense and not as reduction of revenue),equalization mechanism (compensation for hydrocarbons sold on lower rates in the Kingdom).
- Company’s proven hydrocarbon reserves may vary due to difference in volume estimations.
- Acquisition of SABIC for $69.1 billion (purchase of 70% stake from PIF).
- The Government determines the Kingdom’s crude oil production.
- Company operates in highly competitive market.
- Risks related to operations in several countries.
- MENA (Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Morocco, UAE, Palestine, Yemen, etc) region instability.
- The Company required to have all needed permissions, licenses, permits in order to operate.
- Availability of skilled professionals, materials, equipment.
- Company’s cyber security.
- Insurance coverage and cost.
- Development of new oil exploration, new technologies which may impact on crude oil quantity.
- Ecology, green energy and climate change. Company’s operations could be affected by new international regulations.
Company’s balance sheet gives insight into financial strength. As per 31 of December 2018 Company accumulated cash and cash equivalent of $48 billion.
In 2018 revenue of Saudi Aramco was $315 billion and other income related to sales was $40 billion. Operational costs was $143 billion. As per 31 December 2018, net income is $111 billion.
Global supply, demand and prices for hydrocarbons affecting Company’s operations and financial results.on chart presented Brent Crude oil price movement for last 5 years.
Crude Oil prices have fluctuated significantly. Prices declined from monthly average of $112 per barrel in 2014 to $31.9 per barrel in 2016.
Market expectation have significant influence on international prices, demand and supply. International geopolitics may negatively influence of crude oil prices. Disruption of trade routes may have influence on Company’s financial results. The Government establish maximum level of hydrocarbon production based on strategic energy goals. Seasonality of demand influence on quarterly results.
Saudi Aramco and Abu Dhabi National Oil Company achieved agreement for land acquisition in Maharashtra state (India). It will be the largest overseas investment of Aramco and ADNOC with 1.2 million barrels per day integrated mega refinery.
For last a few years Aramco IPO news flooded market but it’s not yet announced by the Company.
Global demand and supply of crude oil.
According to Saudi Arabian Oil Company’s Global Medium Term Note Program report, GDP growth expected to be key element in demand of crude oil. Global GDP expected to grow at 3% per annum. Global crude oil demand expected to grow 0.5% per annum. Global demand for refined products expected to grow at 0.8% per annum. Demand mainly driven by Asia Pacific, Middle East and Africa’s demand.
On chart above presented global crude oil demand per day (now it’s almost 85 million barrels per day). Red line represent global annual growth.
Different countries have different brake even price for oil extraction. Lowest brake even price is for Saudi Arabia, followed by Kuwait, Iraq and Qatar. Highest brake even price is for India offshore, Venezuela offshore, Azerbaijan offshore and China offshore (onshore). Shift in geographical demand for refined products resulted in opening large refineries in Asia Pacific and Middle East.
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