Saudi Aramco lifts the lid

Thee national oil company of Saudi Arabia and largest oil company in the world, Saudi Aramco produces around 13 percent of the world’s oil, but its business operations have been notoriously opaque for decades.

It has often been believed that Aramco has a great number of low-cost legacy wells that reduce their overall production costs to less than $10 per barrel, there is no audit information to support this.

Saudi Aramco this week lifted the lid on its financial situation in a bond offering for the company. (PDF link here).

The company is the world’s most profitable company ahead of Apple and industry competitors like ExxonMobil.

Earning $111 billion on $356 billion in revenue in 2018 nearly double the $59.4 billion made by Apple, the world’s second-most profitable company and five times the $20.8 billion made by ExxonMobil last year.

Bloomberg points out that Aramco’s “funds flow from operations” was $26 per barrel last year, which they note was worse than Shell or Total which reported $38 and $31, respectively.

The drop in revenues during the downturn explains why  OPEC threw in the towel in 2016 opting to abandon its price war with U.S. shale.

OPEC’s largest member saw its income dry up and was on the verge of posting a loss if oil prices didn’t turn around.

The implications of this news are that we will likely never again see an extended period of time with world oil prices below $45, because OPEC will have to take action at that point to prop up prices as the cartel did in 2016. Otherwise, they will quickly find themselves in deep financial trouble, unable to balance government budgets.