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What Saudi Aramco's Bond Prospectus Reveals About Its Oil Reserves

By Ellen R. Wald, Ph.D.CommoditiesApr 04, 2019 03:20AM ET
www.investing.com/analysis/saudi-aramco-bond-prospectus-200403775
What Saudi Aramco's Bond Prospectus Reveals About Its Oil Reserves
By Ellen R. Wald, Ph.D.   |  Apr 04, 2019 03:20AM ET
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On Sunday night, the Saudi Arabian national oil company, Saudi Aramco, released its bond prospectus ahead of roadshows in New York and London. The company recently agreed to purchase Saudi petrochemicals company SABIC for $69 billion and is selling $30 billion in bonds for the down payment on this purchase. The bond prospectus reveals new financial information and more about the largest oil company in the world.

We already knew that Aramco was the most profitable company in the world, but we now know that in 2018, Aramco’s earnings before interest, tax, depreciation and amortization were $224 billion. Its net income in 2018 was $111 billion. In comparison, Apple’s (NASDAQ:AAPL) net income in 2018 was about $60 billion and ExxonMobil’s (NYSE:XOM) was about $21 billion.

Analysts have been scouring the 400+ page bond prospectus for information on Aramco’s current and future oil and gas production and the insights this information could provide to markets. However, there is fairly little in this prospectus to give us a sense of Aramco’s coming production numbers in a week, a month, a year, or ten years. Nevertheless, an article was published on Tuesday claiming that Aramco’s supergiant oilfield Ghawar is “fading faster than anyone guessed,” and it helped move oil prices higher.

Oil Weekly
Oil Weekly

The article incorrectly asserts that capacity at Ghawar field has dropped, though we do not know this to be true. Ghawar has long been the largest and most productive oilfield in the world, and the article accurately states that it produced 5 mbpd as recently as 15 years ago. It is the most famous oilfield and it is seen as a staple of oil production in the industry, so any news that it is getting old and declining sparks fear of “peak oil” among traders.

In truth, the Aramco bond prospectus provides little information about Ghawar’s current or future production. The only information it does provide is in the form of something called the “MSC.” This term is refers to the capacity that Aramco is required by law to be able to access within a three-month timeframe.

The Saudi Hydrocarbons Law sets the total Saudi MSC at 12 million bpd. In other words, Aramco must be able to ramp up production from whatever level it is producing to 12 million bpd in just three months time, and Aramco must be able to hold the 12 mbpd level for one year. In accordance with this requirement, Aramco breaks down that production by field. So, if for some reason it becomes necessary for Aramco to increase production to 12 million bpd, Ghawar field’s responsibility is to produce 3.8 million bpd.

Ghawar might be producing at that level now, or it could be producing less. The MSC number for Ghawar is not necessarily a maximum capacity. The prospectus simply indicates that in the scenario in which the government calls for Aramco to produce 12 mbpd, Ghawar would be responsible for 3.8 mbpd, almost 1/3 of the total, far more than any other field. It makes sense that Ghawar would be producing less oil than it once had—even if it is still capable—because Aramco has more options now.

For those who are wondering about the depletion rates for Aramco’s oil fields, the prospectus also indicated that half of Aramco’s reservoirs are less than 20% depleted. Ghawar still accounts for 21.3% of Aramco’s liquid reserves.

Should we be concerned that the world’s largest source of oil is being depleted faster than we thought? Perhaps, but the information released by Aramco does not shed any light on that subject nor provide any new information.

What Saudi Aramco's Bond Prospectus Reveals About Its Oil Reserves
 

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What Saudi Aramco's Bond Prospectus Reveals About Its Oil Reserves

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Comments (7)
Abdul Basheer
Abdul Basheer Apr 07, 2019 3:17AM ET
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What about tomarrow dow jone and nasdaq going down or up any idea
Edhi Pranasidhi
Edhi Pranasidhi Apr 06, 2019 10:16PM ET
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nice writing and thoughts...a $100 per barrel soon ?
Michel Kozah
Michel Kozah Apr 06, 2019 10:16PM ET
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70-75
Timochin Khan
Timochin Khan Apr 04, 2019 10:47AM ET
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Excellent article as always....Thanks again Ellen...
inderjeet virk
inderjeet virk Apr 04, 2019 9:46AM ET
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sometimes looks like we are sleep walking into an oil crisis
Shriram Choudhary
Shriram Choudhary Apr 04, 2019 7:45AM ET
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slow down. .all the world us inventory very high. sale on every rise.
Marshall Hiepler
Marshall Hiepler Apr 04, 2019 7:23AM ET
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Everything is a Dog and Pony Show.What does this mean for investors in the energy sectors? It means that the show script is being written to elicit a sense of fear, regarding oil reserves and future availability to meet demand. Thus, the objective is to drive oil prices higher, over time. As petroleum consumers, this puts the financial squeeze on us, in the quest for greater profits. However, as stock holders, the natural trend is for stock values to rise with quarterly profit increases. Fear drives human behaviors like no other influence. For the savy investor, it offers economic opportunities.
arnie stocks
arnie stocks Apr 04, 2019 5:34AM ET
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conclusion - nothing is sure ,may be data is wrong or manipulated intentionally , let's see because we are on edge when decision is going to take place , it's clear cut battle ,let's see USA will win or not - hint (Mr Trump -how much time is left ,main key to problem).
 
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