Saudi Aramco was the world’s most profitable company in 2018, easily surpassing Apple and Exxon Mobil, according to an extract of the firm’s accounts published by Fitch Ratings.
Yet the Saudi kingdom’s influence on the state oil producer via high taxation is also denting its profitability, with cash generated per barrel just a notch below that of Big Oil companies such as Royal Dutch Shell Plc. That’s getting in the way of Aramco achieving a much higher credit rating.
Aramco generated earnings before interest, tax, and depreciation of $224 billion last year, Fitch said Monday, rating Aramco as A+ – the fifth-highest investment grade level – ahead of its debut in the international bond market. That’s significantly above the $82 billion of Apple or the $40 billion of Exxon Mobil.
The credit rating, a first for Aramco, offers a glimpse into the accounts of the company, which have remained secret since its nationalisation in the late 1970s.
The information will help investors assess the possible value of a once-in-a-generation deal for financial markets: the firm’s proposed initial public offering, originally targeted for 2018 but last year delayed until 2021.
Dependence on the company to finance social and military spending, as well as the lavish lifestyles of hundreds of princes, places a heavy burden on its cash flow. Aramco pays 50% of its profit on income tax, plus a sliding royalty scale that starts at 20% of the company’s revenue.
The A+ rating reflects the “strong links” between the company and the kingdom, and the influence the state has on Aramco through regulating the level of production, taxation and dividends, according to Fitch.
Aramco reported funds flow from operations — a measure closely watched by investors and similar to cash flow from operations — of $26 per barrel equivalent of oil last year, according to Fitch. That’s below what Big Oil companies such as Shell and Total SA enjoy, at $38 and $31 per barrel, respectively.
Using data provided by Fitch about the company’s total oil and gas production last year and the cash flow per barrel, Bloomberg estimates that Aramco reported total fund flow from operations of about $130 billion last year. Although that’s significantly higher than what Big Oil produces, the difference isn’t a large as the Ebitda. Shell, for example, reported cash flow of $53 billion. Exxon reported cash flow last year of $36 billion.
Fitch’s A+ rating for Aramco is one level below the AA- for both Shell and Total. Exxon Mobil has a top Aaa rating from Moody’s Investors Service and a second-highest AA+ from S&P Global Ratings.