Fitch: World’s top producer generated US$224b Ebitda last year

DUBAI: Saudi Aramco was the world’s most profitable company last year, easily surpassing United States behemoths, including Apple Inc and Exxon Mobil Corp, according to an extract of the firm’s accounts published by Fitch Ratings.

Yet the Saudi kingdom’s influence on the state oil producer via high taxation is also denting its profitability, with cash generated per barrel just a notch below that of big oil companies such as Royal Dutch Shell Plc. That’s getting in the way of Aramco achieving a much higher credit rating.

Aramco generated earnings before interest, tax and depreciation (Ebitda) of US$224 billion (RM913.92 billion) last year, said Fitch yesterday, rating Aramco as “A+” — the fifth-highest investment grade level — ahead of its debut in the international bond market. That’s significantly above the US$82 billion of Apple or the US$40 billion of ExxonMobil.

The credit rating, a first for Aramco, offers a glimpse into the accounts of the company, which have remained secret since its nationalisation in the late 1970s. The information will help investors assess the possible value of a once-in-a-generation deal for financial markets: the firm’s proposed initial public offering (IPO), originally targeted for last year, but last year delayed until 2021.

The company is preparing to raise debt in part to pay for the acquisition of a majority stake in domestic petro-chemical group Saudi Basic Industries Corp worth about US$69 .1billion.

The deal is a Plan B to generate money for Saudi Arabia’s economic agenda after the IPO was postponed. In effect, Crown Prince Mohammed Salman is using the firm’s pristine balance sheet to finance his ambitions.

Aramco pays 50 per cent of its profit on income tax, plus a sliding royalty scale that starts at 20 per cent of its revenue.

The “A+” rating reflected the “strong links” between the company and the kingdom, and the influence the state had on Aramco through regulating the level of production, taxation and dividends, according to Fitch.

Aramco reported funds flow from operations — a measure closely watched by investors and similar to cash flow from operations — of US$26 per barrel equivalent of oil last year, according to Fitch.

That’s below what big oil companies such as Shell and Total SA enjoy at US$38 and US$31 per barrel, respectively.

“Funds from operations, which is operation cash flows before working capital changes, is the best measure to compare oil companies’ profitability, since earnings before Ebitada does not take into account taxation,” said Fitch senior director Dmitry Mar-inchenko.

Using data provided by Fitch about the company’s total oil and gas production last year and the cash flow per barrel, Bloomberg estimates that Aramco reported total fund flow from operations of about US$130 billion last year.

Although that’s significantly higher than what big oil produces, the difference isn’t as large as the Ebitda.

Shell, for example, reported cash flow of US$53 billion. ExxonMobil reported cash flow last year of US$36 billion.