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Saudi Aramco springs no surprises at gentle first results call

Bloomberg London | Updated on August 13, 2019 Published on August 13, 2019

File photo   -  Reuters

Saudi Aramco’s senior executives can breathe a collective sigh of relief after the company’s first-ever earnings call with investors. The half-hour event was a pretty gentle affair, with few questions, that were likely to embarrass a company with a potentially lucrative share sale in the works.

Finance chief Khalid Al-Dabbagh took questions from nine participants — some representing banks that had been advising on the sale — and managed to say little that was new, without at any point appearing to stonewall his questioners. His performance was not much different from that of executives from most large companies presenting their results, but those listening in will have gone away knowing little more about Aramco’s plans or prospects than they did before.

The questioners never really sought to dig too deeply into the company’s figures, strategy or plans for the future. The answers were either very general, or restatements of things that were already known. Perhaps that reflects the fact that Aramco remains the world’s most profitable company and biggest oil producer. Or maybe that nobody on the call wanted to be seen as difficult with that initial public offering looming.

Also read: RIL-Aramco deal: A win-win for Reliance Industries

Details could not be given on the agreement to buy a stake in the refining assets of Reliance Industries Ltd, or how it would be funded, because it is at a very early stage. Sabic synergies could not begin to be evaluated until that deal is closed, but that should happen very soon. Expansion of the East-West pipeline will hopefully be completed by September.

The company itself is ready for an IPO, but the timing will be decided by its shareholder.

A 12 per cent year-on-year drop in capex was attributed to improved efficiency and timing, but no forward guidance was forthcoming. Similarly, dividends have to be sustainable, they have to be affordable and they have to be benchmarked — but we got no steer on what that might actually mean.

A question on the preferred balance between upstream and downstream capacity was sidestepped rather than met head-on. Participants still have no idea of what proportion of production Aramco wants to be able to process in its own refineries, or with partners.

Opening up

Nonetheless, the call does mark progress for the state-owned oil giant, whose profits were a closely guarded secret until this year.

One thing we did learn was that the company has no plans to tap international debt markets again in 2019, though its looking at green bonds, eurobonds and Sharia- compliant bonds, should it decide in future that more external funding is necessary and desirable.

Aramco, officially known as Saudi Arabian Oil Co, announced first-half results earlier on Monday, which showed a 12 per cent drop in earnings to $46.9 billion as crude prices fell and costs rose. Despite the decline in profit, the company increased cash flow and raised its dividend to almost match net income, giving a special payout to the government.

The results call comes as Aramco tiptoes toward the greater disclosure required of public companies. It published annual financial statements for the first time in April, ahead of a $12 billion bond sale. The IPO, planned for 2020 or 2021, would put the Saudi giant under even greater scrutiny from investors and invite comparisons with other oil majors.

Published on August 13, 2019

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