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Aramco IPO: How It Will Stack Up Against Exxon & Shell


As Saudi Aramco’s much hyped IPO approaches, the company’s most recent annual review, released last week, provides insight into its strategic direction. Aramco has positioned itself to be accepted by investors as a major international oil company (IOC) and as a globally diversified energy enterprise with integrated downstream and sales operations around the world. Currently, Aramco is a national oil company (NOC), owned by the government. But upon its expected public offering of shares, it will join the ranks of other major IOCs.

Let’s look at how Saudi Aramco’s business compares with that of two major IOCs – ExxonMobilXOM +0.42%and Royal Dutch Shellnull +0%.

Proved Reserves

Saudi Aramco announced in its annual review that it had 260.8 billion barrels of crude oil and condensate reserves in 2016. Aramco’s reserves have been reviewed recently by Gaffney, Cline and Associates and by DeGolyer and MacNaughton but have not yet been audited in a publicly-available report. ExxonMobil announced that its 2016 reserves totaled 20 billion barrels, meaning Aramco’s is more than 13 times largely. By comparison, Shell had a total of just 6.258 billion barrels of reserves, according to its annual report.

Saudi Aramco’s reserves exist entirely within the borders or off the coast of Saudi Arabia, whereas Exxon, Shell and other majors have reserves globally. Many IOC reserves are held through joint ventures with other IOCs and NOCs. Aramco does not own its vast reserves. The King of Saudi Arabia does, but Aramco has the exclusive rights to production.

Employees, Community Involvement, and the Environment

Saudi Aramco has 65,282 employees. Exxon has over 70,000 employees. Shell employs about 90,000. In its annual review, Aramco espoused a commitment to safety, training, diversity, education and community involvement just like any modern multinational corporation. Similarly, in documents and speeches, Aramco has regularly stated the same commitment as major IOCs to preserving the environment and using technology to improve efficiency and reduce emissions. Aramco also touted its direct and indirect investments in various energy technology startups and its three Aramco Research Centers located in the United States. All oil companies today have realized the benefit of exclaiming their commitments to community involvement and environmental protection. Aramco is no different.

It might surprise readers to learn that Aramco experimented with solar panels as early as the 1970s, when it was still an American-owned company. Aramco is still pursuing alternative energy technology. In last week’s annual review Aramco stated a mission to make Saudi Arabia a “solar powerhouse.” It has developed new technologies, including a, “robotic dry-cleaning technology that is fully automated,” and can clean desert dust off of solar panels.

Upstream Developments

Through the low oil prices of the last two years, Aramco has continued to develop new upstream projects, meaning E&P. Some of these include: a 250,000 barrel per day expansion project at the Shaybah facility, increasing production capacity at the Khurais field by 300,000 barrels per day (bpd) and bringing the Wasit Gas Plant up to its full processing capacity of 2.5 billion standard cubic feet of gas per day. Comparatively, in 2016, Exxon touted its purchase and plans to purchase land and rights for oil and gas production globally, including in Papua New Guinea, the Permian Basin in Texas, and the Utica field in the northeast United States. In Utica, Exxon’s 2016 gas production increased fivefold. Shell began or increased operations in multiple global joint ventures. Among these are: beginning oil production from a 50% stake in a Brazilian deep-water project, starting oil production in a 35% interest in a project in Brunei and beginning production in a 100% owned oil project in the Gulf of Mexico.

Saudi Aramco averaged 10.5 million bpd of crude oil production in 2016. Exxon averaged just over 4 million oil equivalent bpd and Shell averaged under 2 million bpd of crude oil and natural gas liquids. Because Aramco has yet to make financial disclosures, it is not possible to accurately gauge the profitability of its upstream enterprises. However, it has long been assumed that because of the ease of extraction in Saudi Arabia, Aramco’s break-even point is the lowest in the industry.

Downstream Developments

Downstream operations, the stage of oil and gas production from refining on, have been a source of profit in the industry during this period of low oil prices, though downstream margins are often lower than upstream. Aramco appears to lag behind major IOCs in the extent of its downstream operations. However, Saudi Aramco has been diversifying into downstream globally since the late 1980s. On July 10, Nasser said, “the company has identified refining and chemicals, among other areas, as key drivers of long-term value and growth.”

Aramco highlighted its expanding downstream operations in 2016, in the Netherlands (joint venture with LANXESS, a German chemical company), South Korea, Indonesia (joint venture with Pertamina) the United States (obtaining the remaining shares in the Motiva refinery from a joint venture with Shell). In Saudi Arabia, Aramco is expanding operations in separate joint ventures with both Dow ChemicalDOW -0.2% Co. and Sumitomonull +0%. Similarly, Exxon is expanding downstream operations in the United States, Singapore, Belgium and the Netherlands.

Whereas Aramco produces significantly more upstream crude oil than its competitors, it sells much less downstream product. However, Aramco’s refining and petrochemical investments indicate that it is expanding rapidly in its goal to “become the world’s leading integrated energy and chemicals company.”

As always, this is not a recommendation for investment and the author is not paid by or affiliated with any of the companies discussed above.

Edited: For accuracy, the upstream numbers for Exxon and Shell have been clarified in their description from the original.

Ellen R. Wald, Ph.D. is a historian & scholar of the energy industry. She consults on geopolitics & energy. Her book, Saudi, Inc., will be published in 2018 by Pegasus Books.


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