DUBAI—Saudi Aramco’s net income surged nearly 50% to $111 billion last year as global oil prices rose, according to a bond prospectus issued to investors, revealing that the oil and gas firm is the most profitable company in the world.
The oil firm’s 2018 net income shot up from 284 billion riyals, or the equivalent of $75.9 billion, in 2017. By comparison,
Apple
Inc.’s
equivalent profit was roughly $60 billion in its last full year; Amazon.com Inc. was $10 billion and Exxon MobilCorp. was $21 billion.
The three years of financial information contained in the prospectus illustrate how tightly Aramco’s profits are tied to oil prices. Aramco reported a significantly lower net profit in 2016 of $13.2 billion, the prospectus said, when prices fell to a monthly low of $31.90.
According to the prospectus, Aramco’s revenues were $355 billion in 2018, and its operating profit, before interest and tax, was %$212 billion
The numbers allow investors to evaluate the oil firm ahead of what could be the world’s biggest ever initial public offering. Saudi Crown Prince Mohammed bin Salman wants to attract capital to the kingdom as part of his plan to diversify its oil-dependent economy and has said he intends to list Aramco in 2021 after years of delays.
Prince Mohammed previously announced he would list 5% of Aramco in 2018 at a valuation of roughly $2 trillion, though that process was delayed due to concerns, among other issues, that the worth of the company wasn’t close to the royal’s estimate.
The figures released Monday by ratings firms indicate a much lower potential valuation for Aramco, up to about $1.4 trillion, according to analysts.
Aramco posted the massive earnings last year numbers despite taxes of roughly 50% to the government, which is highly reliant on contributions from the oil firm. Aramco also pays a royalty to the government of 20% of revenues up to $70 a barrel of oil, and the rate increases on a sliding scale at prices above that level. Fitch estimates that from 2015-2017, Aramco accounted for around 70% of the country’s revenues.
Aramco has chosen banks including
JPMorgan Chase
& Co. and
Morgan Stanley
to manage its first debt offering and hold a roadshow beginning Monday in at least eight cities in the U.S., Europe and Asia, according to people familiar with the matter. Investment bank Lazard is also an independent adviser on the bond sale.
The financial information issued by the ratings firms is the first look under the hood at Aramco, whose financials have been a state secret since the once-American-run firm was nationalized in 1988.
Saudi Crown Prince Mohammed bin Salman is pushing the kingdom and its oil firm to become more financially transparent as part of his wider social and economic reform plan. Prince Mohammed wants to attract capital to the kingdom to diversify the oil-dependent economy and had planned to IPO Aramco in 2018. That process has since stalled due to valuation concerns among other factors, and officials have pivoted to a bond issuance.
An Aramco oil tank is seen at Saudi Aramco’s Shaybah oilfield in Saudi Arabia.
Photo:
ahmed jadallah/Reuters
The proceeds from the bond would be used for as a down payment on its $69.1 billion purchase of 70% of Saudi Basic Industries Corp., with the remainder of the acquisition paid in installments over time, The Wall Street Journal has reported. The ratings firms said Monday that installments would be paid up to 2021, according to their discussions with Aramco management.
Aramco is buying the 70% stake from Saudi Arabia’s sovereign-wealth fund, Public Investment Fund, which is expected to use the proceeds to drive Prince Mohammed’s agenda. The fund is developing new cities and entire industries in Saudi Arabia and has invested or committed nearly $100 billion to partnerships such as
SoftBank Group
Corp.’s
Vision Fund and stakes in technology firms such as Uber Technologies Inc.
Ahead of the Aramco bond sale, agencies published ratings on the oil firm for the first time. Fitch rated Aramco at A+, the fifth-highest investment grade level and the same as Saudi Arabia’s sovereign bonds. The firm also said it assessed the company’s stand-alone credit profile, ignoring sovereign-related risks, at AA+, or one notch above the level at which the Saudi government itself can raise debt.
Moody’s likewise rated Aramco A1, a similar level to Fitch, and noted that the oil firm’s ties to the government meant it couldn’t be assessed higher.
Exxon Mobil
Corp.
is rated AAA by Moody’s, its highest level.
“Saudi Aramco’s rating is constrained by the rating of the government of Saudi Arabia given the broad credit linkages between the two,” Moody’s said on Monday, adding that a sovereign credit upgrade or downgrade would impact Aramco’s rating.
Analysts have long waited to see Aramco’s financials and information about its reserves. In 2018, Aramco reported $355.9 billion in revenue and other income related to sales and $111.1 billion in net income, Moody’s said. Its operating profit, before interest, tax and depreciation, was $224 billion, Fitch said. The rating agency didn’t publish a net income figure.
Saudi Aramco also has a strong liquidity position, according to the ratings firms. As of year-end 2018, the company had $48.8 billion in cash compared with $27 billion of group debt. Fitch said it forecasts Saudi Aramco’s net debt rising to around $35 billion by 2021, after incorporating the Sabic transaction. Sabic will contribute around $8 billion a year to Aramco’s income from operations, Fitch said.
Saudi Aramco is the world’s largest oil producer by volume, Fitch said. The oil firm’s 2018 total hydrocarbon production averaged 13.6 million barrels of oil equivalent a day, including natural gas output, ahead of global and regional producers such as Abu Dhabi National Oil Company,
Royal Dutch Shell
PLC,
Total
SA
and
BP
PLC, the ratings agency said.
Saudi Aramco estimates its proved liquids reserves at 227 billion barrels and its total hydrocarbon reserves at 257 billion barrels of oil equivalent. Aramco’s net cash position at the end of last year was $48.8 billion and total borrowings were $27 Billion, according to the bond prospectus. It made 69% of revenues last year from upstream oil and gas and the remainder from so-called downstream operations.
Write to Rory Jones at rory.jones@wsj.com and Summer Said at summer.said@wsj.com
