Aramco Talks Financials; It’s Not Your Usual Earnings Call
The Saudi national oil firm’s first-ever earnings call today isn’t just another chat with investors.
It’s an important step in the corporate transformation of the world’s most valuable company.
Saudi Aramco will go through its half-year earnings with analysts and journalists today at 9 a.m. Eastern. It released some highlights earlier today: Net income came in at $46.9 billion, off by about 11% from last year’s $53 billion, thanks to lower oil prices.
Early Monday, it also had other big news: It agreed to buy a 20% stake (worth about $15 billion including debt) in the energy business of India’s Reliance Industries, a move that helps match its crude output with global refining capacity.
The flurry of disclosures comes in sharp contrast to the recent past. Just a few years ago, very little was known about the Saudi Arabian Oil Co., as the company is officially known, beyond its oil production numbers. Its profit was a state secret.
Its sole shareholder was the Saudi king, and by extension, the government. It didn’t adhere to Western accounting standards and didn’t pretend to.
Now Saudi Aramco is revving up its plans to publicly list the company’s shares in what is expected to be the world’s largest ever IPO. It is fresh off a $12 billion bond issuance that proved its willingness to disclose its financial results and showed that some investors were willing to look past the circumstances of the murder of Jamal Khashoggi.
The webcast today to disclose half-year 2019 numbers provides a practice run at an important ritual for a public company. Close Aramco watchers will be interested less in its blockbuster financials than in any clues it provides about plans to publicly list as soon as 2020. Those efforts had stalled last year, but Aramco executives revived them in recent weeks.
Potential IPO investors will want to know how independent Aramco’s decision-making process is from King Salman and his 33-year-old son, Crown Prince Mohammed bin Salman.
They have taken a strong interest in Aramco since taking power in 2015, getting it to buy the national petrochemicals firm and pushing the IPO idea over the objections of Aramco executives.
Investors also want to know what Aramco executives say about how they plan to return value to shareholders, likely through large dividends. And they will be interested in learning more about how Aramco will remain accountable to shareholders, even as it seeks to maintain a stable oil market by moderating its production to influence oil prices.
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What We’re Watching
• State-backed Saudi Aramco, the world’s largest oil producer, holds its first-ever earnings call with investors on Monday.
• The Organization of the Petroleum Exporting Countries publishes its monthly oil market report on Friday. It will be scrutinized for signs about how the group sees the global supply and demand balance.
Oil investors are focusing their attention on the twin concerns of slowing demand and excess supply, as the market fears the U.S.-China trade fight will hurt the global economy and put a dent in consumer’s appetite for oil.
Brent was trading down 1.04% at $57.94 a barrel on London’s Intercontinental Exchange Monday. WTI futures were down 1.49% at $53.69 a barrel on the New York Mercantile Exchange.
Saudi Aramco Set to Acquire Stake in Indian Venture, Ahead of Mammoth IPO
Saudi Aramco is buying a 20% stake—worth some $15 billion including debt—in India’s Reliance Industries oil and chemicals business, a move that would help match its enormous crude production with refining capacity, as it gears back up for a planned initial public offering, write Corinne Abrams and Sarah McFarlane.
It’s Back: Aramco’s Plans For Biggest-Ever IPO Are on the Front Burner Again
Saudi Arabia’s state oil firm is speeding up plans for an initial public offering, touted as the world’s biggest listing, reports Summer Said, Julie Steinberg and Ben Dummett.
The move to partly float Aramco could happen as soon as early next year. The float has been accelerated because Saudi Arabia wants to take advantage of the positive international reaction to the firm’s $12 billion debut bond sale in April. The planned IPO is also aimed at raising capital to help Saudi Arabia diversify its economy away from oil.
And This Just Out: Aramco Profit Hit By Lower Oil Prices
Aramco said net income for the first half of the year was $46.9 billion, down around 11% from the same period a year ago due to lower oil prices, report Sarah McFarlane and Summer Said.
The results, while lower because of the fall in crude prices compared with the same period last year, was still the largest profit of any reporting company by far—outstripping the likes of Exxon Mobil Corp. and Apple Inc.
SoftBank’s Solar Powered Ambitions Founder
Japan’s SoftBank Group’s ambitions to fund solar mega projects in places such as Saudi Arabia and India have fallen short of the projections or have failed to materialize, write Phred Dvorak and Rory Jones.
The firm’s Chief Executive Masayoshi Son announced plans to build as much as 220 gigawatts of solar capacity in Saudi Arabia and India by 2030. Yet SoftBank has managed to contract for around 3 gigawatts in India, hasn’t completed a project in Saudi Arabia and doesn’t appear close to winning a major contract there soon.
Giant Batteries Could Recharge Renewable Energy Push
A global wave of investment in high-capacity batteries is poised to transform the market for renewable energy in coming years, making it more affordable to store wind and solar power and deploy it when needed, writes the Journal’s Neanda Salvaterra.
Investors Worry About the Environmental Impact of Gas
U.S. energy companies are producing record volumes of natural gas, touted as a cleaner-burning fuel than oil or coal, writes the Journal’s Rebecca Elliott.
Still, growing public concern over leaks and intentional releases of gas and its primary component, methane, threaten to derail the dominance of gas in the global energy transition. Methane is far more potent than carbon dioxide in contributing to climate change, according to scientists.
• The question of whether solar power will overtake fossil fuels as the world’s preferred source of electricity is turning into a question of when. (New Scientist)
• Military protection for Western tankers in the Persian Gulf is expanding, but how will U.S. and European navies guard against unconventional tactics? (Petroleum Economist)
• More than a million electric vehicles on American roads are evading taxes paid by their dirtier counterparts. (Pacific Standard)
• Changing the times at which we use electricity could cut 15% off our peak electricity needs by 2030. (Vox)
Big Number: 1.1 million
That’s how many extra barrels of oil analysts at Goldman Sachs project the globe will need in 2019. The figure was revised down from an earlier forecast at the start of the year of 1.4 million barrels a day.
Reporter’s Notebook: Far-Reaching Demand Worries Dent Investor Sentiment
Investors are taking a dim view of oil’s future fortunes despite a slew of data that points to potential supply constraints, writes the Journal’s Amrith Ramkumar.
When I began looking at expectations for 2020 supply and demand in the oil market, it was striking how weak sentiment was considering the number of recent incidents in and around the Strait of Hormuz, OPEC’s extended production cuts and slowing shale growth in the U.S.
It was particularly noticeable how many investors I spoke to said that fears about softening demand growth are overshadowing catalysts on the supply side. They argued supply could grow about 1 million barrels a day faster than demand in 2020 even if production continues to slow.
Those discussions happened even before the latest escalations in the U.S.-China trade fight, which continues to drive caution across commodities.
“Sentiment is so poor,” says Mike Morey, chief investment officer of Integrity Viking Funds, which manages a fund that invests in North American shale producers. “Bad news is taken as extremely negative. Good news is pretty much pushed aside.”
Short bets on U.S. crude futures by hedge funds and other speculative investors have risen to their highest level since mid-February, while the ratio of bullish bets to bearish wagers has dropped to 3.2, Commodity Futures Trading Commission data show.
That ratio stood at 25 in July 2018. That context is helpful for understanding oil’s wild swings recently, including one-day drops of nearly 8% and 5% in the past few weeks and subsequent rebounds.
Q&A: Chevron Phillips Bets on Plastics
Chevron Phillips Chemical recently inked a joint-venture deal with state-owned Qatar Petroleum to build an $8 billion petrochemical plant on the U.S. Gulf Coast. The agreement comes after the two companies agreed in June to build a plant in Qatar. Chief Executive Mark Lashier, in an interview with the Journal’s Christopher M. Matthews, discussed the partnership and the long-term prospects for the chemical industry. Edited excerpts:
Q: Global demand seems to be slowing. Was this the best time to announce these projects?
A: Headwinds are always coming and going in this business. We are focused on the long term. These projects have a long lead time and they take a long time to develop and build.
We look at the fundamentals, and we will go wherever in the world we can access the most abundant, low-cost feed stocks.
Q: The U.S. and Qatar compete in the global natural gas markets. Why does this deal make sense for both sides?
A: Certainly the countries compete on liquefied natural gas, but I do think you can have large competitors that find ways to successfully cooperate to lower their investment risks.
They expressed an interest in [investing outside] Qatar. They were willing to come and invest billions of dollars here in the U.S. For us, it helps mitigate challenges with trade, mitigate different risks associated with location. They don’t have hurricanes in Qatar, for example.
Q: Many of the world’s largest oil companies are pouring more investment into chemicals. Why?
A: More and more hydrocarbons are going to be going into the downstream and petrochemicals. It’s a smart move based on the growth of demand for our product.
The global middle class is growing, and most of the products we make are targeted at that middle class. Plastic materials make their lifestyle more sustainable, whether it is light weight vehicles or keeping food fresher for longer.
We want to be your first energy read of the week. This newsletter is a production of the global WSJ energy team, which is made up of a dozen editors and reporters in Houston, New York, London and Dubai. Send feedback to John Simons and Neanda Salvaterra at EnergyJournal@wsj.com.
SOURCE: MoneyBeat – Read entire story here.