Founded in 1933 and headquartered in Dhahran, Saudi Aramco is by far the world's largest oil exploration and production company. It supplies more than a tenth of the world's oil and currently generates more than $1 billion a day in revenue. Under a 60-year concession from the Kingdom of Saudia Arabia to Aramco which has access to 270 billion barrels, more than 20% of the world's oil reserves and more than ten times those of ExxonMobil's. Aramco also has nearly 294 trillion standard cubic feet (scf) of natural gas reserves. Reports suggest that Aramco is the world's second largest producer of crude oil (behind Venezuela) with an output of 10.2 million barrels per day. Aramco is one of the few companies that continues to invest to increase its production capacity. Its ambition is to go from a capacity of 12 million barrels per day to 13 million. As far as natural gas is concerned, the objective is to increase capacity by 50% by 2030. Capex in 2022 is expected to be between 40 and 50 billion dollars this year versus 32 billion last year. This amount includes investments in hydrogen and renewable energies.
Saudi Aramco is not only an upstream giant, but also owns downstream assets, such as the Sadara Chemical Company - a $20 billion joint venture with Dow Chemical - and the largest chemical plant ever built at one time. Sadara uses oil and gas to produce a range of specialised chemical components found in many end products, such as cosmetics and automotive parts. The plant illustrates Aramco's and therefore the Saudi government's commitment to developing higher value-added industries such as petrochemicals, which can build on the Kingdom's natural resources rather than replace them. Amin Nasser, CEO of Aramco, presented the Sadara plant as a demonstration that Saudi Aramco is a key player in Saudi Arabia's economic diversification.
Expanding refining globally is another long-term challenge for Aramco. The state-owned company already operates international and domestic refining joint ventures, such as Motiva in partnerships with Shell) or Saudi Aramco Total Refining and Petrochemical with Total.
By acquiring stakes in foreign refineries, the Saudi company wants to secure market shares in countries where demand growth is strong such as China, India and Indonesia.
The expansion of Aramco's downstream assets shows that the Saudi leadership has realised that it has so far lost considerable value by exporting commodities and importing higher value-added finished products. The focus on petrochemicals shows how the development of the "new economy" promoted by Prince Mohammed Bin Salman (MBS) is financed by hydrocarbons. The strategy: exploit and preserve their main resource - oil and gas - for at least the next 20 years and use the revenues to develop new sectors.
Aramco is a significant contributor to the Saudi economy: 45% of Saudi Arabia's GDP, 90% of the country's export revenues and almost 90% of budgetary revenues come from Saudi Aramco. But Aramco is not only the largest Saudi company. It is also a benchmark for the Kingdom. Indeed, the state-owned company employs a considerable number of people (about 67,000 employees). It is also seen by many as a model of the more dynamic and open society that MBS is trying to promote.
Founded in the early 1930s in a partnership with US Standard Oil, the company prides itself on hiring the brightest young Saudis - a symbol of meritocracy in a tribal culture. It strives for the highest standards of operational excellence, has a multinational workforce and has accounting and governance structures that rival those of oil majors such as ExxonMobil. Within the Dhahran compound, men and women have worked side by side for decades with a lifestyle similar to that of Western companies.
The gigantic dividends paid to the Saudi state are reinvested into the sovereign fund PIF ("Public Investment Fund") following the example of Norway via its "1.2 trillion dollar Government Fund". The PIF invests part of its $450 billion in assets under management in large multinationals and in particular in so-called growth companies such as Tesla, Uber and Softbank. It should be noted that PIF has publicly stated that it wants to invest significantly in ESG-labelled securities - without, however, giving any details on the size of these investments.
In December 2019, Saudi Aramco shares were listed on the Riyadh Stock Exchange (Tadawul) and raised US$25.6 billion, making it the world's largest IPO, succeeding Alibaba Group in 2014. The free float is 1.7%, implying that 98.3% of the capital remained in state hands.
This month, Saudi Aramco became the world's largest listed company, with a market capitalisation of USD 2,430 billion, de facto dethroning Apple (see chart below). This change is as much a testament to the excellent management of Aramco than to the plunge in technology stocks.