Homepage / Currency / Behind the veil of Saudi Aramco
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election


Behind the veil of Saudi Aramco

IF SAUDI ARAMCO is a state within a state in Saudi Arabia, then the blandly named Oil Supply Planning and Scheduling (OSPAS) is its deep state. To enter it, you pass tight security at Aramco’s suburban-style headquarters in Dhahran, in the east of the kingdom. The transition is eye-opening. Suddenly, English is the common tongue even among Saudi “Aramcons”, as its workers are known. Female employees, their faces uncovered, lead meetings of male colleagues. The crisp banter is common to engineers everywhere. A toilet break is called a “pressure-relief” exercise.

Deep within, OSPAS is even further removed from the kingdom outside. The few executives with clearance to enter call it the “nerve centre” of the world’s largest oil company. Using 100,000 sensors and data points on wells, pipelines, plants and terminals, it directs every drop of oil and cubic foot of gas that comes out of the kingdom (10% of the world’s oil supply), monitors it on giant screens as it heads to ports and power stations, and tracks oil tankers as they load. Well managers in the desert outback wait daily for OSPAS to tell them what to do. “It’s not just pretty graphics,” an executive says, purring appreciatively over the 70-metre web of data flashing on the wall.

  • Retail sales, producer prices, wages and exchange rates

  • Foreign reserves

  • How taxes can align the interests of individuals and society

  • The case against shrinking the Fed’s balance-sheet

  • Can companies block employees’ class-action lawsuits?

  • Kenya’s supreme court explains why it annulled last month’s presidential poll

Because Aramco has all its “upstream” oil-and-gas operations in one country, it says it can justify investing big sums—and a lot of computer capacity—on such technology, because it helps cut costs. “ExxonMobil operates in 40-plus countries. It just can’t do that,” the executive adds, before apologising lest he appear to bad-mouth a client and partner, one of Aramco’s American founding former shareholders.

Such comparisons will become more pertinent as Aramco opens itself up for an initial public offering (IPO). Until recently it was just as cloistered from outside scrutiny as the kingdom itself, giving it more of a mystique than a good reputation. This week it invited The Economist for a visit. It only partially lifted its veil; its finances remain off-limits to everyone except the government, its only shareholder. Affable executives dodge almost every attempt to wheedle out useful ways of comparing the firm with its listed peers (it has no peers, they dissemble).

But despite the hermeticism, Aramco has a good tale to tell. Even as its rivals have retrenched owing to low prices, it has stuck to long-term plans, investing heavily in technology, training and the future of oil. Its long-term approach may help explain one mystery. For decades, Saudi Arabia’s declared oil reserves have confounded the industry; since 1989 they have remained suspiciously constant at around 260bn barrels—a dozen times those of Aramco’s nearest listed rival (see chart). As if to rub it in, Aramco says the kingdom has a whopping 400bn further barrels of resources that could one day become reserves.

These reserves are under audit ahead of the IPO, and executives are loth to discuss the process. However, they argue that whereas other companies have to go far to find new reserves, Aramco can keep them constant simply by better stewardship of its existing fields. Amin Nasser, the chief executive, says the company’s recovery rates—the share of oil recouped from what is available in a field—average about 50%, but rise as high as 70%, compared with a global average of about 33%. It does this by maintaining the pressure of its wells over the long term through gas re-injection and other means. Raising recovery rates on average to 70% would add 80bn barrels to reserves, an executive says. That is four times ExxonMobil’s latest total.

Unlike big listed companies, which scrapped growth plans when the price of oil slumped in 2014-16, Aramco has also been able to keep on investing because of its low costs, Mr Nasser says. Increasing natural-gas output is now the main focus, but it has also raised oil production in some areas. This is visible at the vast Shaybah field in Saudi Arabia’s blisteringly hot Empty Quarter, where Aramco last year upped oil output by 250,000 barrels a day (b/d) to 1m b/d, inaugurated a facility to process natural-gas liquids (pictured on previous page) and laid 650km of new pipelines across a mountain range of red sand dunes. (Aramco also set out to repopulate the surrounding desert with oryx, gazelle and ostrich hunted almost to extinction. They are now reproducing, although the first ostrich eggs to fertilise sadly cooked in the heat.)

Its second focus is technology. Whereas some of its peers admit that they squandered the chance to invest in big data during the oil boom before 2014, Aramco has no such regrets. Last year it inaugurated its home-grown “TeraPowers” technology, which uses 1trn pixel-like computational cells to simulate the flow of hydrocarbons through 500m years of geological time, enabling it to model oilfields in granular detail. From Dhahran it can remotely direct drilling of horizontal wells in Shaybah, steering a drill-bit through miles of rock to within a few feet of its target. (Royal Dutch Shell recently boasted of using similar remote-drilling technology in Argentina.) To train young employees in understanding the subsurface, Aramco has a 3D virtual-reality “cave” in Dhahran, which shows the filigree of wells 1,500 metres below the surface of Shaybah, as if from a submarine.

Third, as Saudi Arabia’s most attractive employer, Aramco has less difficulty than its Western peers in attracting millennial recruits (born between around 1980 and 1996) who are turning away from the oil and gas industry. It has kept up spending on international scholarships during the slump. It plans to raise the share of women in the workforce from 25% to 40%. Its chief engineer and head of human resources are both female. Saudi labour laws still apply, however: female Aramcons may not stay overnight at an oilfield.

Aramcons pride themselves on a Westernised culture handed down from their American forefathers before nationalisation in 1980. This makes them confident they can handle the listing. “From the way [Aramco] was built, from the beginning I would say it was ready for an IPO,” Mr Nasser says. The main change, he adds, will be issuing quarterly results.

But that underplays the challenges ahead. For one thing, Aramco is not master of its destiny. The future of the IPO, such as the decision on where and when to list, is in the hands of the government shareholder, represented by Muhammad bin Salman, the crown prince. Domestic political tension and external frictions with Qatar risk delaying the IPO until 2019—and further muddying the waters.

The potential valuation is also contentious. MBS, as the crown prince is known, has said he believes Aramco is worth $2trn, though many analysts think that is over-ambitious. To improve its chances, the kingdom is leaning toward a listing on the New York Stock Exchange rather than in London, because America has deeper pools of capital. However, that would expose Aramco to legal risks it would prefer to avoid. In order to bring in Chinese investors, the kingdom is also considering issuing some shares in Hong Kong.

However strong Aramco may be upstream, its lower-margin refining and petrochemicals divisions will drag down the valuation. Aramco has some intriguing plans to mitigate this, hoping in the next few years to build a plant with new technology to turn crude oil directly into petrochemicals—in essence, leap-frogging refineries. But this is untested.

In sum, the IPO is more for the kingdom’s benefit than Aramco’s. It could have drawbacks—exposing the firm to investors with short time horizons or to activists hostile to fossil fuels. But the Aramcons appear determined to make the most of it. Executives argue that oil’s future is bright, even if electric cars and cleaner fuels emerge. Low costs mean there is no danger Saudi oil will become a “sunset industry”, says Mohammed al-Qahtani, head of its upstream division. A listing will make Aramco “the envy of the rest of the world”.

Source: economist
Behind the veil of Saudi Aramco

Comments are closed.