Aramco Gets First Credit Ratings

(edited)

Guess who joined the big happy family of companies with credit ratings? That's right, Aramco. Guess what the ratings are? That's right: A+ and A1.

The Big Short, anyone?

"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 percent of its profit on income tax, plus a sliding royalty scale that starts at 20 percent of the company’s revenue."

And yet it made more than Apple and Exxon last year. It's a hard life. Here.

Edited by Marina Schwarz
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25 minutes ago, Marina Schwarz said:

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 percent of its profit on income tax, plus a sliding royalty scale that starts at 20 percent of the company’s revenue."

Gulf News screwed up (or maybe "coaxed" to fudge the numbers?). 

They can't even get simple numbers correct.  It's THOUSANDS of princes, and not a mere hundreds of princes.

Breeding like rabbits, apparently.

Saudi Royal Family Is Still Spending in an Age of Austerity

And their ranks continue to swell. The founding king’s many children had many of their own — King Saud, the second king, alone had an estimated 53 sons. “Only a stadium suffices to hold the ever-expanding Al Saud clan,” an American diplomat wrote in a memorandum in 2009.

The relatives number in the thousands, but from there, estimates diverge, said Joseph A. Kechichian, who has studied the family for three decades and wrote a book, “Succession in Saudi Arabia.” He estimates that there are now 12,000 to 15,000 princes and about as many princesses. Princess Basmah bint Saud, a daughter of King Saud, five years ago put the number of royals at 15,000.

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My head is spinning right now. Talk about a dynasty!

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Just now, Marina Schwarz said:

My head is spinning right now. Talk about a dynasty!

The problem is that it is not supportable, given the habits of those princes.  There are tales about that very high-priced autos are simply abandoned when they run out of gasoline, as no prince is going to bother to refuel it.  They just have another new one delivered by the dealership - with full fuel.  The old one?  It gets pushed somewhere and gathers dust. Who knows, maybe that is all just a myth.  But I wouldn't put it past those guys to behave like that. 

Going to get interesting when the oil finally starts running out, that's for sure. How many will have their own personal tank? There were gunfights in those palaces, attempting to assassinate MbS already (complete with hasty burials).  Oh, well.  The Oil Curse. 

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18 minutes ago, Jan van Eck said:

Going to get interesting when the oil finally starts running out, that's for sure.

Yes. They have never known different, have they? The republican in me is raging against this particular monarchy.

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2 minutes ago, Marina Schwarz said:

Yes. They have never known different, have they? The republican in me is raging against this particular monarchy.

And now you know why I am a committed Monarchist!

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Since the princes are ostensibly part of "the government" isn't the tax going to support them that way? Unless they're on the payroll directly. I'm still guessing Aramco is better run than Pemex by several orders of magnitude

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(edited)

18 hours ago, Tom Kirkman said:

Gulf News screwed up (or maybe "coaxed" to fudge the numbers?). 

They can't even get simple numbers correct.  It's THOUSANDS of princes, and not a mere hundreds of princes.

Breeding like rabbits, apparently.

Saudi Royal Family Is Still Spending in an Age of Austerity

And their ranks continue to swell. The founding king’s many children had many of their own — King Saud, the second king, alone had an estimated 53 sons. “Only a stadium suffices to hold the ever-expanding Al Saud clan,” an American diplomat wrote in a memorandum in 2009.

The relatives number in the thousands, but from there, estimates diverge, said Joseph A. Kechichian, who has studied the family for three decades and wrote a book, “Succession in Saudi Arabia.” He estimates that there are now 12,000 to 15,000 princes and about as many princesses. Princess Basmah bint Saud, a daughter of King Saud, five years ago put the number of royals at 15,000.

Sustainable?! It sounds like a snowball that is going to destroy the Kingdom eventually. 

Edited by ronwagn

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Sustaining 15,000 royals is relatively easy. It's floating 20 million other nationals that challenges things. Granted most aren't making the big bucks, but the overall trends of the last few decades are not sustainable. And I think there is maybe one, two at most, royals at Aramco. A lot of almost royals, the Naimis, and Falahs, on the payroll. The entitlements run deep, well past the royals. 

Yes, it's a middle of the road oil company for profit for barrel. But not because upstream and midstream is a mess. How many oil companies do you know of that run an American school systems with the best paid teachers on the planet, the largest John Hopkins health care system, build fisheries, sports stadiums, pretty much take over any large project some government ministry is botching, and probably overpay for goods and services, and have 4 people to do the job of 1 because employing people is better than just handing out money. Not to mention all the money losing JVs the kingdom has them buy. Their track record on petrochemicals is not good, from a making money perspective. Good for captive clients and putting a few folks to work, but it's an expensive, inefficient way to create jobs. Not to mention the amount of oil they produce, and don't sell on the market. The Kingdom, especially in the summer, is quite the consumer of crude. The mega project bing the Kingdom is on, hard to see that working out well. Add these up and really it's impressive how much they do make.

If Aramco went public, shedding the non-oil business, and transitioning to GAAP style accounting (look at the numbers today, they don't add up), having public company accountability internally and externally, could bring the costs down to near best in class in a few short years. But the political pressure would be brutal. 

As Moody's stated, it's hard to separate Kingdom risks from Aramco. Personally I'd be happy to buy 5 year bonds backed by Aramco. But I'd short the stock if it was listed. 

Remember the Sauds own the Kingdom, it is an absolute monarchy and all of this is their absolute right. And the government is semi-separate. Most Saudi nationals work in the public sector, which is probably 95% Saudi. The public sector is 90% expat. That is why the reforms must happen. The Royals need to lower the demand on Aramco to pay for everything or at some point the civil unrest gets seriously ugly. Unemployment for the under 25 crowd is quite high, and they have modernized, so a sort, expectations. A 50 year old was born in a mud hut without electricity. A 25 year old was born to modern life, satellite TV, and the internet. Completely different. MBS is right to drive reform. Is he doing it the right way? A lot of western consultants have taken billions to say yes. 

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it is simple,oil is over priced,so no matter the rough expenditure,they will still make profit

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(edited)

Actually, the data suggest that on a net exports basis, after subtracting out rising domestic liquids consumption,  Saudi Arabia has been supply contained since 2005.

Their net exports of total petroleum liquids (BP data base) increased from 7.1 million bpd in 2002 to 8.7 million bpd in 2005, but their net exports have been below the 2005 level for 12 straight years, through 2017, averaging only 7.9 million bpd for 2006 to 2017 inclusive.

Note the large increase in Saudi net exports from 2002 to 2005 as annual Brent crude oil prices approximately doubled from $25 in 2002 to $55 in 2005.

However, as annual Brent crude oil prices doubled again,  from $55 in 2005 to $110 for 2011 to 2013 inclusive, Saudi net exports averaged only 8.0 million bpd during this three year period of triple digit oil prices--versus 8.7 million bpd in 2005.

In addition, if we extrapolate the post-2005 rate of decline in the ratio of their production to consumption (at a ratio of 1.0, net exports = zero), it suggests that Saudi Arabia may have already shipped more than half of their post-2005 supply of Cumulative Net Exports of oil (CNE), leaving perhaps only around 30 Gb of net exportable petroleum liquids--which would work out to less than 1,000 barrels of remaining net exportable petroleum liquids per capita in Saudi Arabia. 

Edited by Jeffrey Brown
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Wait and see what policy win the oil price game. The policy of Arab princes to change all their traditional policy against Israel to prevent Iran oil exporting to rise oil price or president Trump passion for re-election in 2020 with low gasoline price. Mohammad bin Salman Should pay more Aramco income to has both otherwise if a democrat elected the darkest age for middle east oil companies will start specially with ISIS loosing in Libya unless they make a new rebel group!   

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The King of ALL oil fields is dying and you guys are not even talking about it? Yes the Permian is now #1 but will the Permian and shale last 70 years at this rate?

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(edited)

Re:  volleyguy

Check out these two articles, focused on Ghawar, from 2018:

http://blog.gorozen.com/blog/what-is-the-real-size-of-the-saudi-oil-reserves-pt-1/2

http://blog.gorozen.com/blog/what-is-the-real-size-of-the-saudi-oil-reserves-pt-2/2

Excerpt:

Out of the 100 billion barrels of recoverable reserves, we believe Ghawar has produced approximately 75-80 billion barrels to date, meaning that at most only 25 billion barrels remain. If our analysis is remotely accurate, two important conclusions can be drawn. 

First, although Ghawar’s remaining 25 billion barrels of proved reserves are among the world’s largest, our modelling tells us that Ghawar’s oil production is definitely in decline. Although we have no official data, we believe Ghawar’s production peaked out at 5.5 mm b/d and has been in decline for a decade. Second, it has always been believed that Ghawar represents over 50% of the Saudi total reserves. If Ghawar stands at just 25 billion barrels of remaining reserves, and no significant oil field discoveries have been made since the 14-billion-barrel Shaybah discovery all the way back in 1968, one must seriously question the Saudi’s claim that they still have 260 billion barrels of remaining reserves.

Although there has been chatter on the internet claiming that the independent reserve engineers are “satisfied” that Aramco’s reserve statements are “realistic,” we believe the Saudi Aramco IPO was pulled because it would be extremely problematic for the Saudis to admit their reserve figures have been vastly overstated for years. It would also call into question whether Saudi Arabia really has the large volumes of “excess” pumping capability they have always claimed.

And here is an excerpt from an Oilprice.com post by Dr. Mamdouh G. Salameh:

In a paper titled:”Saudi Proven Crude Oil Reserves: The Myth & the Reality Revisited” I gave at the 10th IAEE European Energy Conference in Vienna, 7-10 September 2009, I reached the conclusion that Saudi proven crude oil reserves actually range from 90-125 billion barrels (bb) and not the 264 bb the Saudis were claiming then. That was 2009.

However, there has recently been claims that an independent audit has put Aramco’s Oil Reserves at $270 billion Barrels”. It transpired that the audit was neither independent nor unbiased since some of the companies that conducted the audit (DeGolyer, MacNaughton, and Baker Hughes’ Gaffney, Cline, and Associates) have or have had service contracts with Saudi Aramco, so it can’t truly be classified as an independent audit.

Still, I decided to make a new estimate of Saudi proven reserves by adding Saudi production since the discovery of oil in 1938 till now (for which we have figures) and then deducting them from Saudi claimed proven reserves along with an annual depletion rate of Saudi aging fields averaging 5%-7% for the same period. My calculations came to around 70-74 bb of remaining reserves compared with the figure in 2009 allowing for production since 2009.

Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London

Edited by Jeffrey Brown

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Hi Jeffrey

 

Nice to hear from you. 

I think the Saudi's are using OOIP reserves not the western method of oil you can recover at current prices. Like you said the "new" discovery was 1968.

What Ghawar means is the Saudi's are no longer the Saudi's as we have all known them all of our lives. The largest low cost field in the world that can turn on and off on a virtual dime. 

Today 3.8 max out of Ghawar what in the next few years? Mexico's giant field collapsed in no time.

 

So yes the Permian is the new king but does the new king have legs?

It looks like Matt Simmons was bang on the money rest his soul. He never got to see the day the Saudi's admitted Ghawar is in big time decline.

This is MONSTER news as Ghawar produced more than every other country in OPEC! (just one field)

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Jeffrey interesting article that the US is at 200 billion barrels production. Conventional oil almost gone. People who like to slam Hubbert often do not know what he was saying. He only said if the reserves are known X the bell curve will go like this. 

Hubbert never said something new would not come along (shale tar sands or wind turbines etc.) or the world would fall off a cliff. He only predicted the bell curve accurately of U.S. production. 

 

Can you even measure the size of shale resource? If so what is it? It will have to replace Gharwar and will need to turn on a dime as the world needs or oil will be on a roller coaster.

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(edited)

Volleyguy,

Of course, it's  important to remember the rather peculiar financial aspect of the increase in US tight/shale production and whether investors would be willing to do something similar in other basins around the world.  An excerpt from a 2/24/19 WSJ article:

Frackers Face Harsh Reality as Wall Street Backs Away

Key lifeline for smaller operators fades, as losses pile up and prospects dim for big investment returns

The once-powerful partnership between fracking companies and Wall Street is fraying as the industry struggles to attract investors after nearly a decade of losing money.

Frequent infusions of Wall Street capital have sustained the U.S. shale boom. But that largess is running out. New bond and equity deals have dwindled to the lowest level since 2007. Companies raised about $22 billion from equity and debt financing in 2018, less than half the total in 2016 and almost one-third of what they raised in 2012, according to Dealogic.

The loss of that lifeline is forcing shale companies—which have helped to turn the U.S. into an energy superpower—to reduce spending and face the prospect of slower growth. More than a dozen companies have announced spending reductions so far this year, even as crude-oil prices have rallied more than 20% from December lows. More are expected to tighten budgets as they release earnings in coming weeks.

The drop in financial backing is especially being felt by smaller, more indebted drillers. But even larger, better-capitalized frackers are facing renewed investor skepticism about whether they can keep spending in check and still hit growth and cash-flow targets.

 

Incidentally, note that Mexico recently joined OFPEC--Organization of Former (Net) Petroleum Exporting Countries. They've probably been at zero net oil exports, or a small net oil importer, on a total petroleum liquids basis, for about four months.  

Their total petroleum liquids production in 2004 was 3.8 million bpd, versus total liquids consumption of 2.0 million bpd, resulting in 2004 (total petroleum liquids) net exports of 1.8 million bpd (BP data).

Production in 2017 was down to 2.2 million bpd, versus consumption of 1.9 million, resulting in 2017 net exports of 0.3 million bpd.

Mexico’s 2004 to 2017 rate of decline in production was 4.2%/year, versus a net export rate of decline of 17%/year.

Note that given an ongoing production decline in a net oil exporting country, unless they cut their domestic liquids consumption at the same rate as the rate of decline in production, or at a faster rate, it’s a mathematical certainty that their net export rate of decline will exceed their rate of decline in production and that their net export rate of decline will accelerate with time.

 

 

 

 

Edited by Jeffrey Brown
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Hi Jeffrey

 

We are clearly on the same page! Fracking has lost $1/4 of a trillion in the U.S.? and now even Wall Street is having concerns. (did shock me just how much Wall Street was willing to lose no questions)

People always say fracking will take off everywhere. Will it? Why is it largely U.S. and Canada? Do most countries want to or afford to lose 1/4 trillion?

To most countries that is not a small amount of money. :)

It will be better when oil is $100 or $150. Again will it? Fracking lost money then. Plus most countries want to fund social programs from oil not waste money on money losing oil.

 

Much remains to be seen but the world is running out of cheap oil (the monster Ghawar) and maybe does not want or can not afford the more expensive kinds?

 

Shale has been mighty impressive just in it's volume though. Now can it make money?

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I'm reminded of the old joke about a high tech startup company--they are losing money on each unit sale, but they hope to make it up on volume. 

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