EconomySaudi Arabia

Report: Aramco Loses $500bln Overnight

The Yemeni drones operation on Saudi oil facilities that led to the largest ever disruption in oil markets has severely tarnished Riyadh’s military capabilities and lowered the value of the well-known company, Aramco, in the energy market with a half-a-trillion dollar loss.

The drones raids by Yemeni Houthi Ansarullah movement targeted Saudi Arabia’s key oil facilities in Abqaiq and Khurais on Saturday. The attacks shut down about 50 percent of the kingdom’s crude and gas production, and cut the state oil giant’s crude oil supply by around 5.7 million barrels per day. A return to normal production could take months, not weeks.

61-year-old engineer Amin Nasser, the Chief Executive Officer of Aramco, leads the world’s largest oil company with 76,000 employees. In a few weeks, he wants to bring it to the stock market, and the international financial markets are already waiting for it.

In Riyadh one expects a gigantic market valuation of more than two trillion dollars. For comparison: Lufthansa is worth seven billion, so Aramco should be as expensive as 300 Lufthansa companies together.

But, the drone strikes have not only hit Saudi Arabia militarily and politically, but also the economic damage is enormous, because suddenly the rating of Aramco is dramatically slumped. Even if oil production recovers quickly, the company’s long-term value is completely re-evaluated. It costs Saudi Arabia at least $500 billion in a single night.

“Global investors are now seeing the special risks at Aramco much larger than before, so the assets are downgraded massively,” Petro analysts said, adding, “You can see the vulnerability of Aramco, and no one sees the company as worth more than $ 1.5 trillion in the long term.”

The sale of Aramco shares is the prestigious project of Crown Prince Mohammad bin Salman (MbS). He wanted to invest the sales proceeds in new industries to diversify the Saudi economy beyond oil revenues. His plan was to first place five percent of Aramco’s shares, thereby redeeming $100 billion.

Aramco makes $500 million profit and the company produces ten million barrels every day, three times as much as the oil company ExxonMobil.

Dividends alone, Aramco paid out $46.6 billion in the first half of the year. So far, Apple is considered the most profitable company in the world, but Aramco simply earns three times as much as the American computer company.

For comparison, the world’s best-known oil companies – Chevron and Exxon Mobil from the US, BP from the UK, the British-Dutch company Royal Dutch Shell and Total from France – achieved nearly $ 80 billion in 2018, but added up. So if you look at Aramco’s tremendous earning power and the enormous reserves of crude oil, a stock market valuation of well over $ 1.5 trillion would still be justified.

Saudi Arabia is trying to calm markets after heavy strikes on its oil facilities, with sources in the kingdom claiming that output was recovering much more quickly than initially forecast and could be fully back in two or three weeks, while other sources have stated that a return to normal production could take months, not days.

Market and industry experts believe that the incident could stoke already-flaring tensions in the Middle East, driving crude prices higher amid growing fears of supply shortages. The consequences of the strikes led to uncertainty in the oil market as it’s unclear when the giant company can restore operations to normal.

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