Lifting the veil from the Aramco money machine

We know considerably more today about Saudi Aramco than we did 24 hours ago, thanks to the call-in webcast arranged for investment analysts — with the media observing silently from the wings — as part of the move toward greater transparency and interaction with the wider financial world.
Such exercises in shareholder participation are part and parcel of the global investment scene. They give investors the chance to put specific questions to executives in an electronic roundtable setting, usually scheduled to coincide with financial results or some other liquidity event.
But while commonplace for many corporations, including Aramco’s peers in the global oil business, for the Saudi oil giant to take part in such an event is a culture-changing development.
Until the publication of the prospectus for its record-setting $12 billion bond earlier this year, Aramco had never issued even an official profit figure, let alone a consolidated (though condensed) statement of income or a balance sheet. It all amounts to a dramatic lifting of the veil in the space of a few months.
So the investor call-in was a useful next step in that process of increasing openness. The call did not run the full allotted hour, and perhaps some of the analysts’ questions had a stilted, rehearsed feel to them. Khalid Al-Dabbagh, Aramco’s chief financial officer, leading the proceedings, stayed pretty close to his brief, but this was to be expected in the absence of more senior executives from the company’s senior echelons.
Notwithstanding this, we took away some important new information about Aramco and its finances. The first, and probably most significant, was confirmation of the fact the Aramco is an incredible money-making machine. We had some idea of this from the bond prospectus, of course, but the dynamic of the oil business has changed significantly since the spring.
That Aramco was able to consolidate its position as the most profitable company in history — net profits of $46.9 billion for the half year — after six months of volatility in the oil market, with big question marks over future demand trends, is remarkable. Saudi Arabia has an asset worth more than Apple, or all the big oil companies of the West combined, on its books.
While some of the analysts’ questions had a feel of “exactly how great are you?” about them, they actually allowed Al-Dabbagh to hammer home basic points that some observers tend to forget about Aramco: It is an unrivaled money machine, producing a valuable commodity at low cost and with high efficiency, and getting it to market as cost-efficiently as modern terminology and logistics allow.
Furthermore, it is achieving this with a developed sense of environmental responsibility, as Al-Dabbagh was keen to point out. Aramco crude comes out toward the top of the world league tables for fossil-fuel cleanliness, as measured by carbon density levels.
It was well into the 30-minute call before one of the analysts mentioned the initial public offering (IPO), eliciting perhaps the firmest response yet from an Aramco executive of the intent. “The company is ready for the IPO,” said Al-Dabbagh, making it clear that the timing is the government’s call.
Nonetheless, listening to the telephone proceedings, you got the sense that some of the analysts were holding back from some serious questions in one crucial area, in particular: Dividend policy.
The half-year financial showed that Aramco paid $46.4 billion in dividends to “the shareholder” — the Kingdom — at the half year, including a special one-off payment of
$20 billion because of last year’s strong financial performance.
But if the analysts were looking for any hint of future dividend policy — a crucial factor in determining the value and attractiveness of any IPO — they were disappointed. Al-Dabbagh stuck to the mantra that future payments will need to be sustainable, affordable, and benchmarked to oil industry practice.
But all things considered, the call-in was a good first attempt at something that does not come naturally for Aramco but which the company will have to get used to as the IPO looms closer. One thing would have made the whole exercise much more interesting: If journalists had been allowed to pose their own questions, I am sure there would have been some punchier exchanges. But it is early days.

Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai