What is Saudi Aramco? | CNBC Explains

Summary

Saudi Aramco, the world's largest oil company, is considering an IPO that could be the largest in history. Originating from a 1933 agreement, it became fully state-owned by 1980. With vast oil reserves, Aramco is a dominant player in the energy market. Despite not publishing financial reports, a leaked report suggests a net income of $33.8 billion for H1 2017. The IPO aims to diversify Saudi Arabia's economy, with Crown Prince Mohammed bin Salman's Vision 2030 at its core.

Takeaways

• 🏆 Saudi Aramco is the largest oil company globally and a major crude oil exporter.
• 🌍 Major stock exchanges like London, Hong Kong, and New York are vying for its public listing, which could be the largest IPO ever.
• 📜 Founded in 1933 through an agreement between Saudi Arabia and a California-based oil company, it was initially named California Arabian Standard Oil Company.
• 🔄 Renamed Arabian American Oil Company in 1944, it's now commonly known as Aramco.
• 🇸🇦 By 1980, Saudi Arabia had fully nationalized Aramco, creating the Saudi Arabian Oil Company in 1988.
• 💰 Aramco's core business is oil extraction and sales, with vast reserves making it a significant player in the global energy market.
• ⛽️ Beyond extraction, Aramco refines oil into products like gasoline and chemicals, and trades about 1.5 million barrels of these products daily.
• 💼 The company's financials are not publicly disclosed, but it's valued at around $2 trillion by Saudi officials, though some analysts dispute this figure.
• 📈 A leaked earnings report suggests a net income of $33.8 billion for the first half of 2017, outperforming Exxon Mobil.
• 🌐 Aramco plans to offer about 5% of its shares to investors, with proceeds directed towards diversifying the Saudi economy.
• 👑 The final decision on the IPO's timing and location rests with Crown Prince Mohammed bin Salman as part of Saudi Arabia's Vision 2030 to reduce oil dependency.

Q & A

What is Saudi Aramco?

Saudi Aramco is the state-owned oil company of the Kingdom of Saudi Arabia and is the biggest oil company in the world, helping the country become the largest exporter of crude oil.

Why are stock exchanges in London, Hong Kong, and New York interested in Saudi Aramco?

These stock exchanges are interested in Saudi Aramco because the Saudi Arabian government is looking to take a part of the company public, which could result in the largest IPO in history.

When was Saudi Aramco established and what was its original name?

Saudi Aramco was established in 1933 out of an agreement between Saudi Arabia and California-based oil company Socal. It was originally called the California Arabian Standard Oil Company.

What was the significance of the 1944 name change to Arabian American Oil Company?

The name change to Arabian American Oil Company in 1944 signified a rebranding and the adoption of the acronym 'Aramco' that the company is now widely known by.

How did the ownership of Aramco change over time?

For years, Aramco was run by a consortium of U.S. oil companies. However, following the creation of OPEC and the nationalization of natural resources, by 1980 the Saudi government had completed its buyout of Aramco’s assets.

What is Saudi Aramco's primary business?

Saudi Aramco's main business is pumping oil and then selling it around the world to customers in places like Japan, the U.S., and China.

What does Saudi Aramco do beyond drilling for oil?

Beyond drilling, Saudi Aramco refines crude into oil products like gasoline and chemicals. It also has a trading arm that buys and sells about 1.5 million barrels of chemicals and polymer products every day.

Why is it difficult to determine Saudi Aramco's revenues?

It is difficult to determine Saudi Aramco's revenues because, as a sovereign-owned company, it has never published a financial report.

What is the estimated valuation of Saudi Aramco and how does it compare to other companies?

Saudi officials estimate Aramco's valuation at a record $2 trillion, which would dwarf market caps of companies like Microsoft, Alphabet, and Apple, the world's most valuable publicly traded company.

What does the leaked earnings report for the first half of 2017 reveal about Saudi Aramco's financial performance?

The leaked earnings report revealed a net income of $33.8 billion for the first half of 2017, showing that Aramco earned more than four times Exxon Mobil, the world's biggest energy company by market cap.

What is the purpose of the IPO for Saudi Aramco and how much of the company is expected to be offered to investors?

The IPO is part of Saudi Arabia's Vision 2030 to diversify the economy away from oil dependence. Aramco is expected to offer about 5% of the company to investors.

What is the role of Crown Prince Mohammed bin Salman in the IPO of Saudi Aramco?

Crown Prince Mohammed bin Salman will have the final say on when and where Aramco's historic IPO will happen, as it is a significant part of his Vision 2030 plan.

What is the potential impact of the IPO on the stability and future of Saudi Arabia?

The success of the IPO could be critical for the future stability of the kingdom, ensuring the ruling royal family's ability to maintain their social contract with the people, which includes generous state handouts in return for political loyalty.