On August 14, 2022, Saudi Aramco Announces the record-breaking profits of a whopping $48 billion for quarter two, a surge of 90% margin compared to last year’s quarter. The company also promised to declare a dividend of $ 18.8 billion this year in October to its shareholders.
Saudi Aramco is a Saudi Arabian Stated-owned oil and gas company with a 95% stake and rests 5 % in the secondary market listed in Tadawul. With over 2.3 trillion dollars in Market Capitalization, it is the most valuable company in the world, employing over 66,000 people.
The company was highly affected during the pandemic and profits dwindled to an all-time low. However, with economic recovery in 2021 alone, amidst the covid pandemic, it generated a revenue of $ 359 billion and a net profit of $109 billion.
The company, however, has a fascinating history to arrive at its present glamour. Let’s dive deep into this short case study to understand, History of the company, the vision of the Saudi Government, the Geopolitical games on its venture, and lessons we can learn from the rise of this incredible company.
The birth of Saudi Aramco dates back to the 1920s when the USA was deprived of taking part in the oil race by then superpowers, the United Kingdom and France. With the concept of the Open Door Policy, the US secured deal with the Baharain Government to set up Oil Corporation ( Bahrain Petroleum Co.) as a subsidiary of Standard Oil of California (SoCal) which attracted the Saudi Government Attention and gave the concession to explore oil field.
SoCal formed a subsidiary company called California- Arabian Standard Oil (CASOC) in 1934 under a Saudi Government grant. Meanwhile, 50% of the stake in CASOC was purchased by Texas Company (Texaco) and fruitless exploration lasted for 4 years when the oil reserve was discovered near Dhahran. The company was renamed in January 1944 as Arabian American Oil Corporation or Aramco
This discovery changed the course of the company, the companies like Exxon (previously Standard Oil of New Jersey ) and Mobil (previously Socony) rushed into a deal to scoop 30% and 10% respectively of Aramco.
As you have seen, there was no stake in domestic companies or the Saudi Government, the American companies were making big bucks with tax benefits from both governments. However, the golden days were soon challenged in 1950. Then Saudi King Abdulaziz passed a royal decree to nationalize the Company under the circumstance of not sharing profit with Saudi. Aramco shared its 50 % profit with Saudi Government
Fig. King Salman
The Saudi Arabian government acquired a 25% “participation interest” in Aramco’s assets in 1973. It increased its stake to 60% in1974 and acquired the remaining 40% interest in 1976 thus making it wholly controlled by Saudi Government.
Aramco continued to operate and manage the former Aramco assets, including its concessionary interest in certain Saudi Arab oil fields, on behalf of the Saudi Arab Government until 1988. The royal decree of 1988 gave full access to Aramco assets, management, and operation to Saudi Government. Hence it became fully state-owned.
The company saw a steep rise in growth as demand for Oil and Gas has skyrocketed. The new oil fields both onshore and offshore were discovered. Currently, they have both Onshore and Offshore, the world’s largest oil reserves.
With the master plan of Vision 2030, to build Sovereign Wealth Fund, Crown Prince Mohammed bin Salman Al Saud announced of floating 5% of Aramco Stake in Secondary Market in 2016.
In September 2019, Saudi Arabia appointed Yasir Al-Rumayyan as the Chairman of Aramco. And Finally, Aramco announced on Sunday 3 November 2019 its plan to list 1.5% of its value as an IPO on the
Tadawul stock exchange.
On 4 December 2019, Saudi Aramco priced its shares at 32 Saudi riyals
(approximately US$8.53 at the time) per share. It raised US$25.6 billion in its IPO, making it the world’s largest in History.
CEO of Saudi Aramco
Saudi Aramco went through various phases of world affairs from world war 2, the gulf war in the 1990s and major economic recessions in the last 7 decades. Recently in 2019, one of their oil fields has to suffer a drone attack from Houthi Rebels. In 2015, Iranian hackers breached some of their cyber securities.
The company faced many backlashes relating to Human rights, Company working culture and environmental concerns from experts.
Despite these issues, Saudi Aramco has minted prosperous years, with a hefty dividend payout to Saudi Government and other Shareholders.