News that Saudi Arabia Oil Company (Saudi Aramco) earned a net income of US$111.1 billion in 2018 means it is the most profitable firm in the world.
The announcement led the Financial Times to claim that, even with talks of innovative economies, "nothing beats extracting black stuff out of the ground at low costs".
Indeed, while oil is a profitable business, Saudi Aramco’s numbers are staggering. And if most conservative estimates are to be believed, Saudi Aramco’s largest oil reserves still have decades of reserves left.
The Saudi royal family have long considered an IPO for the business to help raise funding ahead of a plan to diversify the Kingdom’s economy by 2030. However, it’s easy to understand why they’ve hesitated to sell off ownership of such a profitable firm.
Here are five important facts about Saudi Aramco – the most profitable firm in the world
Saudi Aramco is nearly twice as profitable as Apple
Compared with Apple, which reported a net income of US$59.5 billion in 2018, Saudi Aramco dwarfs its nearest rival.
Look at its industry competitors and you’ll see that Shell – US$23.9 billion – as well as Exxon Mobil – US$20.8 billion – can hardly compete with Saudi Aramco’s numbers.
To put that into further context, the Saudi government levies a 50% tax rate on Saudi Aramco. That means in 2018 it paid US$160 billion to the Saudi government in taxes alone.
That’s at least part of the reason investors are holding their breath in anticipation of a Saudi Aramco IPO. If the company goes public it’s estimated that it would be valued at more than US$1.5 trillion.
It’s more profitable than JP Morgan Chase, Facebook and Exxon Mobil combined
Per CNBC, if you were to add up the profit of Facebook, Exxon Mobil, JP Morgan Chase and Alphabet, you’d get US$106 billion. That still falls short of Saudi Aramco’s profit. That’s astounding when you consider that those three companies are among the most profitable in the world, according to Fortune.
By revenue, Saudi Aramco can’t compete with the likes of Walmart, which recorded US$500 billion in business in 2018, or Shell, which topped US$311 billion. But profitability is where it counts, and Saudi Aramco thumps both company’s respective US$10 billion and US$13 billion in profit.
It produces more than three times as many barrels of oil per day as Exxon Mobil
Producing barrels at an almost unprecedented rate of 13.6 million per day, Saudi Aramco far outstrips the competition when it comes to output.
Its nearest competitor, Exxon Mobil, lags behind with its production rate of 3.8 million barrels per day.
In comparison, Gazprom Neft, Russia’s third-biggest oil producer, produces around two million barrels per day.
And, at its peak in 2018, Iran as a whole only exported three million barrels per day before international sanctions cut that number in half.
It earns less per barrel than Shell
Compared with Shell, which makes US$38 per barrel, Saudi Aramco’s US$26 per barrel is underwhelming.
But, because the Saudi government levies huge rates of taxation on Saudi Aramco – falling from 85% to 50% in 2017 – that figure per barrel makes sense.
That’s why the profit of oil per barrel may be misleading.
Per the Financial Times, Saudi Aramco’s extraction and upstream CapEx costs are US$7.50 per barrel, which means it is more cost-effective than other oil companies.
Besides that, although Saudi Aramco’s sole focus on Saudi oil is often thought of as a drawback, its exclusive access to the country’s sprawling oil fields means it can undercut the competition on pricing.
It has a lower long-term credit rating than Exxon
Even with stability and massive profitability, Moody’s Investors Service declined to give Saudi Aramco its top credit rating.
Issuing it with an A1 rating – a still highly sought-after rating – it falls behind Chevron and Exxon, whose Aa2 and Aaa ratings respectively position them as safer investments.
Part of the reason for that is Saudi Aramco relies solely on Saudi Arabian reserves, unlike other oil companies that buy globally.
Likewise, in 2016, when oil prices fell steeply, Saudi Aramco recorded only US$13.3 billion in profit, a still large but comparatively much smaller profit.
Still, Saudi Arabia’s oil reserves are plentiful, with the prospectus revealing that the Ghawar oil field, the world’s largest, contains 48 billion barrels of oil and is capable of producing close to four million barrels a day. Add to that Saudi Aramco’s low debt and risk-averse structure, and the prospect of the firm going public in the next 12 months becomes even more enticing.