Saudi oil company named world's most profitable business

Saudi Aramco Saudi Arabia

Saudi Arabia's state oil company, Aramco, emerged this week as the world's most profitable company by far, with $111 billion of earnings in 2018, but the end could be near for the kingdom's highly anticipated public offering (IPO) of a 5% stake in the company, already postponed until 2021 at the earliest.

The first official glimpse of Saudi Aramco's financial performance confirms the state-run oil giant can generate profit like no other company on Earth: net income past year was $111.1 billion, easily outstripping US behemoths including Apple Inc. and Exxon Mobil Corp. Rating agency Fitch and Moody had rated the Aramco bonds A+ and A1 respectively, yet both of the rating companies had been quoted saying that without the constraints of Saudi Arabia's sovereign rating, Aramco would be in the league of the legends such as oil companies like Exxon Mobil, Shell and Chevron. Fitch Ratings, which also saw the accounts, said Aramco reported $224 billion in earnings before tax and depreciation, while maintaining low debt levels.

The planned bond sale follows the announced acquisition of a 70 percent stake in Saudi Basic Industries Corp (SABIC) from Saudi Arabia's Public Investment Fund (PIF) in a deal worth $69.1 billion.

That places Aramco ahead of some of the world's most profitable firms. Aramco pays 50 percent of its profit on income tax, plus a sliding royalty scale that starts at 20 percent of the company's revenue.

The company made a whopping $111 billion in 2018, the data shows.

The acquisition is in line with Saudi Aramco's long-term strategy to drive growth through an enhanced Downstream portfolio by increasing global participated refining capacity from 4.9 million to 8-10 million barrels per day by 2030.

"Funds from operations, which is operation cash flows before working capital changes, is the best measure to compare oil companies' profitability, since Ebitda does not take into account taxation", Dmitry Marinchenko, senior director at Fitch in London, said in an interview.

Aramco estimates its proved liquids reserves at 227 billion barrels and its total hydrocarbon reserves at 257 billion barrels of oil equivalent for half a century, a high and comfortable level by worldwide standards, announced Fitch.

The Aramco bonds will not be registered with the US Securities and Exchange Commission, but they may be offered and sold in the US to qualified institutional buyers.

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