Focus first on diversification, then on disclosure

Focus first on diversification, then on disclosure

Oil prices may have softened in the second quarter of 2019, but Saudi Aramco’s recently published results show that it is still the most profitable company in the world.

Yet the tone of much of the ensuing coverage focused on the familiar theme of disclosure and what more the national oil company could have done to inform investors ahead of its planned IPO.

Sometimes gratuitously negative, such coverage that focuses on this aspect distracts from the numbers which really tell their own story.

Saudi Aramco’s first-half net income of $46.9 billion (SR175.9 billion) may have been down by about 12 percent year on year — but that was courtesy of lower oil prices.

It was still almost 50 percent ahead of the five largest Western major oil companies combined, and enough to deliver a whopping 36 percent return on capital.

Transparency is more of a journey than a final destination, and this is still very early in the journey of Saudi Aramco toward privatization. Yet it has already achieved a remarkable transformation from disclosing only minimal information about its financial status to reporting detailed information on its revenues, profits and operations.

The planned IPO of Saudi Aramco is part of a broader reform push in the country that will reduce the reliance of both the company and the Kingdom on cyclical oil revenues so that neither are at the mercy of increasingly volatile oil prices.

The speed with which Aramco is moving toward this goal has been remarkable. From the proposed acquisition of 70 percent of Saudi Basic Industries Corp. to the more recently reported plan to take a 20 percent stake in the oil-to-chemicals business of Reliance Industries, Aramco is completely transforming its revenue base.

As for its reserves, the company has also been upfront in making available an independent third-party audit that revealed that the Kingdom’s proven reserves stood at around 268.5 billion barrels of oil and 325.1 trillion standard cubic feet of gas as of the end of 2017.

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq

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