Aramco's Big Reveal: What We Learned About the Saudi Oil Giant

(Bloomberg) -- It was always suspected, and now it's official. Saudi Aramco is the world's most profitable company.

Jealously guarded financial data about the kingdom's prized asset were disclosed to bond investors for the first time on Monday. Aramco's $111.1 billion profit in 2018 easily dwarfed all other businesses on the planet, a stunning result for a company that also paid the Saudi government $102 billion in taxes last year.

Aramco Unveils Financial Secrets of World's Most Profitable Firm

Here are some insights from Aramco's financial statements:

1- Aramco leads all companies, oil and otherwise

2- It still lags other oil majors in profit per barrel

Aramco, which produces about 10 percent of the world's crude, spends just under $3 a barrel to pump its crude but doesn't generate as much cash per barrel as other top oil companies. The culprit: high taxes. The kingdom depends on the company to finance social and military spending, as well as the lavish lifestyles of hundreds of princes. Funds flow from operations -- a measure closely watched by investors and similar to cash flow from operations -- was $26 a barrel equivalent of oil last year. That's below what Royal Dutch Shell Plc and Total SA enjoy, at $38 and $31 per barrel, respectively.

3- All that income still doesn't support a $2 trillion valuation

Saudi Arabia has long insisted that Aramco would fetch the lofty valuation, even after some investors made it clear in the early stages of the mooted initial public offering that they didn't share that view. The $58.2 billion in dividends paid to the Saudi government last year indicates the company is worth closer to $1.2 trillion if it's judged by the same metrics as other oil majors.

Aramco's Accounts Show $2 Trillion Valuation Still a Challenge

4- Aramco can easily digest a $69 billion acquisition

The state-owned producer, officially known as Saudi Arabian Oil Co., is selling a bond to help buy a 70 percent stake in chemical maker Saudi Basic Industries Corp. from the kingdom's sovereign wealth fund. Aramco will mostly use its own cash for the deal, with half of the payment due to the Public Investment Fund when it closes and the rest staggered until 2021. The installment plan will cost Aramco $500 million in interest.

Aramco's ambition to be the world's top energy company, not just oil producer, will require more large acquisitions, and the Sabic deal is the right first step, said Stewart Williams, vice president for Middle East & North Africa Upstream at consultancy Wood Mackenzie Ltd. “With its finances there for all to see, many will be now asking what's next on Aramco's shopping list.”

5- Investors are hungry for Aramco bonds

“This launch has been eagerly awaited for some time and strong demand has already preceded it,” said Richard Segal, a senior emerging-markets analyst at Manulife Asset Management in London. Aramco may end up paying a small premium to the kingdom's bonds. Furthermore, Saudi Arabia's sovereign-debt yields have declined this year, making it cheaper for Aramco to borrow. Brent crude has also advanced 28 percent.

6- Aramco has little debt, but its credit isn't stellar

Saudi Aramco was assigned the fifth-highest investment grade rating at both Moody's Investors Service and Fitch Ratings. Both firms said Aramco could have ranked even higher but was constrained by Saudi Arabia's sovereign rating. Even though Aramco lags peers like Shell, Total and Exxon Mobil Corp. in credit rating, its proposed acquisition of Sabic won't alter its current ranking thanks to its low debt load.

7- Aramco faces risks, including missiles and hackers

The bond prospectus detailed risks for investors, including missiles falling on Aramco's installations, the impact of proposed U.S. antitrust laws on OPEC, the fight against climate change, and even fears that Saudi Arabia may break the peg between its currency and the U.S dollar. It also revealed Aramco was the victim of “successful” cyber attacks. The prospectus showed how reliant Aramco is on high prices. In 2016, when Brent crude plunged to an average $45 a barrel and OPEC cut production, the company struggled to break even.

--With assistance from Javier Blas, Matthew Martin, Anthony DiPaola, Archana Narayanan and Netty Ismail.

To contact the reporter on this story: Mohammed Aly Sergie in Dubai at msergie@bloomberg.net

To contact the editor responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net