The Saudi Arabian Oil Company, better known as Saudi Aramco, released first-half 2019 results Monday morning ahead of the state-owned company’s first-ever conference call to discuss those results. There should be plenty to talk about.
Aramco announced earlier Monday that it will pay $15 billion for a 20% stake in India’s Reliance Industries, owner of the world’s largest refiner, Jamnagar, which has a daily throughput capacity of 1.24 million barrels. In March, the Saudi giant agreed to acquire the country’s state-owned chemical firm, Saudi Basic Industries (Sabic) for $70 billion.
All this investment comes at a time when crude prices are falling. Aramco’s net income in the first half of 2019 was $46.9 billion, down from $53 billion in the same period a year ago. EBIT dropped from $101.3 billion to $92.5 billion, although free cash flow rose from $35.6 billion to $38 billion. The increase was largely due to a decline in capital spending from $16.5 billion to $14.5 billion.
Aramco’s new openness is widely viewed as preparation for another go at an initial public offering (IPO), valuing the company at some $2 trillion. An earlier attempt for an IPO of 5% of the company stalled last year and could be on the calendar for 2020.
The recent acquisitions of Sabic and a portion of Reliance are part of Aramco’s strategy to try to balance its huge upstream business with more downstream activity. Aramco’s hydrocarbon production in the first half of the year was flat at 13.2 million barrels of oil equivalent, a total the company said represents “near 100%” delivery of customer demand.
Crude oil production in the first half of the year was flat at 10 million barrels a day, while gross refining throughput rose from 4.5 million barrels daily to 4.6 million. Partly that’s due to the production cuts that OPEC and its partners have instituted to push the price higher.
It is also partly due to a slowing global economy where demand is falling. When (if) the economy heats up again, will demand for oil and other hydrocarbons outstrip supply and push prices firmly higher? Aramco does not appear to be willing to bet the ranch on it, hence the investments in refining and chemicals.
How will industry analysts react to Aramco’s new openness? Will a potential $100 billion IPO make everyone forget the murder of journalist Jamal Khashoggi in the Saudi embassy in Istanbul? Those questions are unlikely to be discussed in Monday’s conference call.