Aramco, or officially known as Saudi Arabian Oil Company, is a Saudi Arabian multinational petroleum and natural gas company. It is one of the largest oil companies in the world and is responsible for most of the oil production in Saudi Arabia.
Aramco was founded in 1933 as the California Arabian Standard Oil Company, with the aim of exploring and extracting oil resources in Saudi Arabia. It was later renamed in 1988 to its current name, Saudi Arabian Oil Company or Aramco.
The company is majority-owned by the government of Saudi Arabia and is responsible for the exploration, production, refining, distribution, and marketing of petroleum and natural gas. Aramco operates in several countries around the world, including the United States, China, India, and South Korea, among others.
In 2019, Aramco went public and became the world’s largest initial public offering (IPO) at the time, raising around $25.6 billion. The company listed 1.5% of its shares on the Saudi Arabian stock exchange, Tadawul, with a valuation of $1.7 trillion.
The introduction of Aramco was seen as a significant moment in the history of the Saudi Arabian economy. The company’s IPO was part of Saudi Arabia’s Vision 2030 plan, which aims to diversify the country’s economy away from oil and reduce its dependence on it. The IPO was a way for the country to raise funds for infrastructure development and other projects.
Aramco’s introduction also had a significant impact on the global oil market. The company’s vast oil reserves and production capabilities make it a major player in the oil industry, and its IPO was closely watched by oil market analysts and investors.
Overall, Aramco’s introduction marked a significant moment for the company, the Saudi Arabian economy, and the global oil market. The IPO allowed the company to raise funds and diversify its ownership, while also highlighting the country’s efforts to reduce its dependence on oil and pursue a more diversified economy.
Founding History of Aramco
The history of Aramco (Saudi Arabian Oil Company) dates back to the early 20th century, when the search for oil in the Middle East was just beginning. In 1933, the California Arabian Standard Oil Company (CASOC) was established as a joint venture between Standard Oil of California (now Chevron) and the government of Saudi Arabia.
The company was tasked with exploring for oil in the Saudi Arabian desert, which was largely uncharted territory at the time. In its early years, CASOC faced numerous challenges, including harsh environmental conditions, lack of infrastructure, and political instability.
Despite these challenges, CASOC was successful in discovering oil in the region, and by the mid-1930s, the company had established several oil fields in eastern Saudi Arabia. In 1944, CASOC was renamed to Arabian American Oil Company (ARAMCO), reflecting the increasing involvement of the American partners in the company’s operations.
During World War II, Aramco played a critical role in supplying oil to the Allied forces, and its operations expanded rapidly in the post-war period. By the 1950s, Aramco had become one of the world’s largest oil producers, with a significant presence in the Middle East.
However, tensions between the Saudi Arabian government and Aramco’s foreign owners began to surface in the 1960s. The government argued that Aramco was not paying enough in taxes and royalties, and called for greater control over the company’s operations.
In 1973, the Saudi Arabian government took a 25% stake in Aramco, and by 1980, it had acquired full ownership of the company. Aramco was subsequently renamed to Saudi Arabian Oil Company (Saudi Aramco), reflecting the increased nationalization of the company’s operations.
Since then, Saudi Aramco has continued to expand its operations, both within Saudi Arabia and globally. The company is now one of the largest oil and gas companies in the world, with operations in over 80 countries and a significant presence in the global energy market.
Important timelines for Aramco
Here are some of the important timelines for Saudi Aramco:
1933: California Arabian Standard Oil Company (CASOC) is established as a joint venture between Standard Oil of California (now Chevron) and the government of Saudi Arabia. The company is tasked with exploring for oil in the Saudi Arabian desert.
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1944: CASOC is renamed to Arabian American Oil Company (ARAMCO), reflecting the increasing involvement of the American partners in the company’s operations.
1950s: Aramco becomes one of the world’s largest oil producers, with a significant presence in the Middle East.
1960s: Tensions between the Saudi Arabian government and Aramco’s foreign owners begin to surface. The government argues that Aramco is not paying enough in taxes and royalties, and calls for greater control over the company’s operations.
1973: The Saudi Arabian government takes a 25% stake in Aramco, reducing the ownership of the foreign partners to 75%.
1974: Aramco discovers the Ghawar Field, which is now the largest oil field in the world.
1980: The Saudi Arabian government acquires full ownership of Aramco, and the company is renamed to Saudi Arabian Oil Company (Saudi Aramco).
1990s: Saudi Aramco begins to expand its operations globally, with investments in Asia, Europe, and North America.
2016: Saudi Arabia announces plans to sell a stake in Saudi Aramco through an initial public offering (IPO).
2019: Saudi Aramco goes public, becoming the world’s largest initial public offering (IPO) at the time, raising around $25.6 billion. The company listed 1.5% of its shares on the Saudi Arabian stock exchange, Tadawul, with a valuation of $1.7 trillion.
2020: The COVID-19 pandemic leads to a decline in oil prices and a decrease in demand for oil. Saudi Aramco’s profits decline as a result, and the company announces plans to cut capital expenditures and reduce its dividend.
2021: Saudi Aramco announces plans to invest $110 billion to develop non-oil businesses, as part of the country’s efforts to diversify its economy away from oil.
These timelines reflect the key moments in the history of Saudi Aramco, from its founding as a joint venture between foreign oil companies and the Saudi Arabian government, to its evolution into a fully state-owned oil and gas company, and its recent efforts to diversify its business and reduce its dependence on oil.
How does Aramco makes money?
As the world’s largest oil producer and exporter, the majority of Saudi Aramco’s revenue is derived from its oil and gas operations. However, the company has been working to diversify its revenue streams and expand its presence in other sectors of the energy industry. Here are the major revenue streams of Aramco:
Upstream Operations
Aramco’s upstream operations include exploration, production, and development of oil and gas fields. The company’s upstream operations accounted for 63% of its revenue in 2020. Aramco’s production capacity is estimated to be around 12 million barrels per day of crude oil and 7.4 billion cubic feet per day of natural gas.
Downstream Operations
Aramco’s downstream operations include refining, chemicals, and marketing. The company operates some of the largest refineries in the world, with a total capacity of 4.9 million barrels per day. The company’s chemicals business includes the production of petrochemicals, plastics, and other high-value products. The downstream operations accounted for 34% of Aramco’s revenue in 2020.
Other Energy-Related Businesses
Aramco has been investing in other energy-related businesses, including renewable energy and power generation. The company has announced plans to invest $500 billion over the next decade to develop renewable energy projects and reduce its dependence on fossil fuels. Aramco’s other energy-related businesses accounted for 2% of its revenue in 2020.
Services and Support
Aramco provides a range of services and support to its customers, including drilling and well services, engineering and project management, and logistics and transportation. The services and support business accounted for 1% of Aramco’s revenue in 2020.
Overall, while the majority of Aramco’s revenue still comes from its oil and gas operations, the company has been working to diversify its revenue streams and expand its presence in other sectors of the energy industry, such as renewables and chemicals. This approach will help the company to remain competitive and adaptable to changing market conditions in the long term.
Mergers and Acquisitions of Aramco over the years
Saudi Aramco, being one of the largest oil companies in the world, has engaged in numerous mergers and acquisitions over the years. Here are some of the most significant deals in the company’s history:
1980s: Mobil Yanbu Refining Company In the 1980s, Aramco acquired a 50% stake in Mobil Yanbu Refining Company for $550 million, which was later increased to 100%. The acquisition allowed Aramco to increase its refining capacity and expand its downstream operations.
1990s: Petron Corporation In 1994, Aramco acquired a 40% stake in Petron Corporation, a Philippine oil company, for $364 million. The acquisition gave Aramco a foothold in the Southeast Asian market and allowed it to expand its refining and marketing operations.
1990s: Ssangyong Oil Refining Company In 1996, Aramco acquired a 35% stake in Ssangyong Oil Refining Company, a South Korean oil company, for $1.2 billion. The acquisition allowed Aramco to expand its presence in the Asian market and increase its refining capacity.
2000s: Luberef In 2007, Aramco acquired a 70% stake in Luberef, a Saudi Arabian lubricant producer, for $1.2 billion. The acquisition allowed Aramco to expand its downstream operations and increase its production of high-value products.
2010s: SABIC In 2019, Aramco completed the acquisition of a 70% stake in Saudi Basic Industries Corporation (SABIC), a chemical company, for $69.1 billion. The acquisition allowed Aramco to expand its downstream operations and increase its production of high-value chemicals.
2020s: Yanbu Aramco Sinopec Refining Company In 2020, Aramco announced plans to acquire the remaining 35% stake in Yanbu Aramco Sinopec Refining Company (YASREF) from its joint venture partner, China’s Sinopec, for $1.8 billion. The acquisition would allow Aramco to increase its refining capacity and expand its presence in the Asian market.
These mergers and acquisitions reflect Aramco’s strategy of expanding its operations globally, increasing its refining capacity, and diversifying its business away from oil production.
Financials of Aramco over the years
As of 2021, Saudi Aramco remains one of the most profitable companies in the world, with a strong financial performance despite the challenges posed by the COVID-19 pandemic and the volatility of the global oil market.
In 2020, Aramco’s net income fell by 44.4% to $49 billion, due to a decline in oil prices and reduced demand for oil as a result of the COVID-19 pandemic. However, the company’s financial performance improved in the first quarter of 2021, with net income of $21.7 billion, an increase of 30% compared to the same period in the previous year.
Aramco’s revenue in 2020 was $229.5 billion, a decrease of 30.7% compared to the previous year. However, the company’s revenue rebounded in the first quarter of 2021, reaching $72.6 billion, an increase of 20.6% compared to the same period in the previous year.
In 2020, Aramco’s capital expenditures (capex) fell by 27% to $27 billion, as the company cut back on spending in response to the pandemic and the decline in oil prices. However, Aramco announced plans to increase its capex to $35 billion in 2021, with a focus on its upstream operations and its plans to expand its presence in the natural gas market.
Aramco’s dividend payments to its shareholders also declined in 2020, with the company reducing its quarterly dividend from $18.75 billion to $13.4 billion. However, in the first quarter of 2021, the company announced plans to increase its dividend payments to $18.8 billion, reflecting its improved financial performance and its commitment to shareholder returns.
Overall, despite the challenges posed by the COVID-19 pandemic and the volatility of the global oil market, Aramco remains a financially strong and profitable company, with a continued focus on expanding its operations and diversifying its business.
Impact of Aramco on the global Energy Industry
Saudi Aramco, as the world’s largest oil producer and exporter, has a significant impact on the global energy industry. Here are a few key ways in which Aramco influences the industry:
Firstly, Aramco has the largest oil reserves in the world, which gives it a significant influence over the global oil market. Its production levels, pricing policies, and investment decisions can affect the global supply and demand of oil and thus influence oil prices. For example, in the past, Aramco has often adjusted its production levels to balance supply and demand, and its pricing policies have influenced other oil-producing countries as well.
Secondly, Aramco’s size and importance make it a critical player in global energy security. Disruptions to Aramco’s production can have a significant impact on global energy markets, potentially leading to price spikes and supply shortages. In September 2019, drone attacks on Aramco’s oil processing facilities in Abqaiq and Khurais led to a temporary shutdown of around 5% of global oil supply, causing oil prices to spike by more than 10% in a single day.
Thirdly, Aramco has invested heavily in innovation, research, and development, which has helped it maintain its competitive edge in the global energy industry. The company has developed new technologies and processes to improve efficiency, reduce emissions, and increase the recovery rate of oil and gas reserves. In recent years, Aramco has also invested in renewable energy sources such as wind and solar power, as part of its efforts to diversify its business and reduce its environmental impact.
Finally, Aramco has faced criticism over its environmental impact, given that it is a major producer of oil and gas. Critics have argued that Aramco’s activities contribute significantly to global greenhouse gas emissions, and that the company needs to do more to address its environmental impact. In response, Aramco has launched various initiatives to reduce its carbon footprint, such as carbon capture and storage, and investments in renewable energy.
In conclusion, Saudi Aramco’s impact on the global energy industry is significant and multifaceted, ranging from its influence on oil prices and energy security to its investments in innovation and renewable energy. As the energy industry continues to evolve, Aramco will likely continue to play a central role in shaping its future.
Criticisms faced by Aramco
Saudi Aramco, like any large and powerful corporation, has faced a range of criticisms and controversies over the years. Here are some of the main criticisms leveled against the company:
Environmental Impact
Aramco’s upstream and downstream operations have had a significant environmental impact. The company has been accused of contributing to air and water pollution, as well as greenhouse gas emissions. Some critics argue that Aramco’s oil and gas operations are a major contributor to climate change, and that the company has not done enough to transition to more sustainable forms of energy.
Human Rights Abuses
Saudi Arabia, where Aramco is based, has been criticized for its record on human rights. Critics have accused the country of suppressing dissent and limiting freedom of expression and assembly. Some have also accused Aramco of complicity in these abuses, arguing that the company benefits from the Saudi government’s suppression of its citizens.
Lack of Transparency
As a state-owned enterprise, Aramco has faced criticism for its lack of transparency. The company is not required to disclose as much financial and operational information as publicly traded companies, and critics argue that this lack of transparency makes it difficult to hold Aramco accountable.
Labor Rights
Aramco has also faced criticism for its treatment of its workers. The company has been accused of exploiting migrant workers and violating their rights. In 2016, the International Trade Union Confederation named Saudi Arabia one of the ten worst countries in the world for workers’ rights.
Corruption
Saudi Aramco has also been implicated in various corruption scandals. In 2015, the company was accused of paying bribes to secure contracts in the construction of a university in Saudi Arabia. In 2019, the US Securities and Exchange Commission charged a former Aramco employee with bribery and money laundering.
Overall, while Aramco has played a significant role in the global energy industry, the company has faced a range of criticisms and controversies over the years. Critics have accused the company of environmental harm, human rights abuses, lack of transparency, labor rights violations, and corruption. These criticisms highlight the need for greater accountability and transparency in the operations of large corporations, particularly those with significant influence over global energy markets.
Competitors of Aramco
As the world’s largest oil producer and exporter, Saudi Aramco operates in a highly competitive industry. The company faces competition from both national and international companies, including:
National Oil Companies (NOCs): Many countries have state-owned oil companies that compete with Aramco. These NOCs often have similar advantages to Aramco, such as access to government funding and natural resources. Some of the most significant NOCs include Russia’s Rosneft, China National Petroleum Corporation (CNPC), and National Iranian Oil Company (NIOC).
International Oil Companies (IOCs): Aramco also competes with IOCs, which are often larger and more diversified than NOCs. IOCs may have access to advanced technology and greater financial resources. Some of the major IOCs include ExxonMobil, Royal Dutch Shell, BP, and Chevron.
Independent Exploration and Production Companies (Independents): Independents are smaller companies that focus on exploring and producing oil and gas. These companies often have a higher risk tolerance and may be more nimble than larger competitors. Some significant independents include ConocoPhillips, Devon Energy, and Occidental Petroleum.
Renewable Energy Companies: As the world transitions to cleaner forms of energy, Aramco faces increasing competition from renewable energy companies. These companies focus on developing and producing renewable energy sources such as solar, wind, and hydropower. Some of the largest renewable energy companies include NextEra Energy, Enel Green Power, and Iberdrola.
Electric Vehicle Manufacturers : As electric vehicles become more popular, Aramco may face increased competition from companies that produce electric vehicles. Electric vehicles rely on electricity, rather than oil and gas, for power. Some of the largest electric vehicle manufacturers include Tesla, Volkswagen, and General Motors.
Overall, Aramco faces significant competition from a range of national and international companies, as well as from companies focused on renewable energy and electric vehicles. The company will need to continue to innovate and adapt in order to remain competitive in a rapidly changing global energy market.
