Saudi Aramco, the world's largest crude producer, highlighted its financial muscle and resilience to slumping oil prices on Monday, but otherwise offered few revelatory insights in its first ever earnings call to analysts, bankers and the media, who have been eagerly awaiting the company's much-vaunted but much-delayed stock market listing.
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State-owned Aramco stands ready to execute an initial public offering, but any decision on timing will be left to the country's government, Chief Financial Officer Khalid al-Dabbagh said on the earnings call, repeating a common refrain from company officials.
"The company is ready for the IPO. The timing of the IPO itself, this is a shareholder issue. They will announce it depending on their perception of the optimal conditions," Dabbagh said, providing no further information on how the oil giant would operate as a publicly traded company.
Saudi Arabia's national oil company announced net income of $46.9 billion for the first six months of 2019, down from $53.2 billion in the same period a year earlier. Even with the year-on-year slide, Aramco remains the world's most profitable company by far and talked up its durability in the face of lower oil prices, with Brent futures having fallen 20% since April to less than $60/b.
Aramco, which averaged crude production of 10 million b/d and refining throughput of 4.6 million b/d in the first half of the year, is working toward an IPO by 2021, whose proceeds could transform the kingdom's economy, and is hoping to use the positive sentiment from its first international bond sale in April that raised $12 billion.
"Despite lower oil prices during the first half of 2019, we continued to deliver solid earnings and strong free cash flow underpinned by our consistent operational performance, cost management and fiscal discipline," Aramco CEO Amin Nasser said in a statement.
Though its income fell, Aramco's dividend payments to the government rose in the first half to $46.4 billion, including a $20 billion special dividend that Dabbagh said reflected the company's strong results from last year. Dividends totaled $32 billion in 2018, of which the special dividend accounted for $6 billion.
The rise in payouts should be a concern for potential investors, with a need for more transparency about how the dividend is determined, said Ellen Wald, president of Transversal Consulting and author of a book on Saudi Aramco's history.
"Right now, the [dividend] process seems be entirely based on the needs or wants of the kingdom," Wald said. "It is a sign that there is still much that needs to be clarified about the relationship between the government and the company if it is going to be attractive to potential investors in an IPO."
Dabbagh would only say on the earnings call that the dividend policy was based on being "sustainable, affordable and benchmarked."
"This is a decision between management and the board, based on free cash flow generated for the previous period," he said.
OIL MARKET CHALLENGES
Since Saudi Arabia first announced plans to sell shares in the company in 2016, Aramco's listing has encountered many challenges, including the lofty $2 trillion valuation that Saudi officials were hoping for, estimates of the country's oil reserves that are shrouded in secrecy and the international venue for the IPO.
Aramco's listing plans quickly slipped from "definitely by the end of 2018," as Saudi officials put it in early 2018, to "indefinitely postponed" last summer.
In June, Saudi Crown Prince Mohammed bin Salman said Aramco's IPO would go ahead as planned, and was on track for next year or the year after.
In the meantime, Saudi Arabia is spearheading a 1.2 million b/d production cut agreement with OPEC, Russia and other allies in a bid to support prices and rebalance the market, but has faced an uphill struggle amid global economic concerns and surging US shale output.
Aramco has to try to balance the benefits of lower production on prices with continued investment for future growth. Capital expenditure was $14.5 billion in the first six months of 2019, compared with $16.5 billion in the same period in 2018, the company reported. Dabbagh declined to provide capex guidance going forward.
Aramco officials on the earnings call did not discuss how the company's income and operations would be impacted by any continuation of the cuts or, indeed, any deeper cuts, as Saudi officials have sought to gauge OPEC's appetite for further action to stem the recent slide in oil prices.
Saudi Arabia pumped 9.70 million b/d in July, according to the latest S&P Global Platts survey of OPEC output, some 600,000 b/d below its quota under the OPEC+ deal.
In July, Aramco awarded $18 billion of contracts to expand the Marjan and Berri fields, adding 550,000 b/d of production capacity to replace declines elsewhere.
Aramco has been attempting to secure outlets for its crude by expanding its refining and petrochemical sector, including an agreement to purchase a 70% equity stake in Saudi petrochemical powerhouse SABIC. Dabbagh said antitrust due diligence was still being performed on the deal.
"We hope that it comes to an end very soon, and as soon as it's completed, we will close the deal and start executing our payment and our integration program for the acquisition," he said.
Aramco on Monday also said it had signed a letter of intent to explore buying a 20% stake in the oil-to-chemicals business of India's Reliance Industries for $15 billion.
The company aims to double its global refining footprint to some 10 million b/d by 2030, targeting key growth markets in Asia.
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