Saudi Aramco said it's prepared for its anticipated public offering as the state oil giant reported an 11 per cent decline in net profit and prepares to buy 20 per cent of India's Reliance Industries's oil-to-chemicals business for an enterprise value of $75 billion.
In the company's first ever earnings call, Aramco's chief financial officer Khalid Al Dabbagh said the company was "IPO-ready".
"The timing of the IPO itself is a shareholder issue and they will announce it as per their convenience," he said.
A pipeline capable of carrying 5 million barrels of oil per day (bpd) linking the country's oil-rich eastern province with export terminals on its west coast will see capacity increased to 7 million bpd by September, he added.
Saudi Aramco has been looking to get its oil to market from routes alternative to the Strait of Hormuz, where tankers carrying its crude and product have come under attack since May.
Dhahran-based Aramco's net profit attributable to shareholders for the first six months of the year reached $46.9bn. The privately-held company first revealed financial data in April in a prospectus for its debut $12bn bond issue.
"Disclosing our financial results for the first time, as part of our $12bn debut international bond issuance, marked a significant milestone in Saudi Aramco’s history,” Saudi Aramco president and chief executive Amin Nasser said in a statement.
Aramco’s earnings before interest and tax were down 9 per cent for the first half to $92.5bn, while free cash flow increased 7 per cent to $38bn for the same period. The state oil company's capital expenditure stood at $14.5bn for the first half, compared with $16.5bn in the same period last year.
Aramco’s average selling price for its crude during the first half declined to $66 per barrel from $69 during the same period last year. Crude production, meanwhile, stayed flat at 10 million barrels per day. In spite of a decline in net income, Aramco paid the government, its sole shareholder a $46bn dividend for the first half, compared with $32bn last year.
Meanwhile, Reliance Industries chief executive Mukesh Ambani announced the deal with Aramco as one of the biggest foreign direct investments in India.
"This is the biggest foreign investment for Reliance and one of the largest for India,” he told shareholders on Monday. The partnership with Saudi Aramco will cover RIL's Refining and Petrochemicals assets, including 51 per cent of the petroleum retail JV, Mr Ambani said.
"Saudi Aramco and Reliance have agreed to form a long-term partnership in our oil-to-chemicals division. Saudi Aramco will invest for a 20 per cent stake in RIL’s O2C division at an enterprise value of $75 billion,” he added.
Saudi Aramco will supply 500,000 barrels per day of crude to Reliance’s refinery at Jamnagar on a long term basis. Aramco’s stake will also include the 1.24 million bpd capacity refinery - the world’s largest - in India’s western state of Gujarat.
The cash injection would come at a time when Reliance is looking to reduce its debt, which stood at $32bn at year-end according to Bloomberg estimates, to zero.
India imports 80 per cent of its oil, with a significant proportion sourced from the Middle East. Saudi Arabia had been India’s top supplier of crude until 2017, when it was displaced by Iraq.
Aramco’s move follows an earlier agreement with Indian state refiners to invest in a planned $44bn integrated refinery on the country’s western coast. Saudi Aramco has been scouting for lucrative refining deals to secure market share for its crude, particularly in countries with growing demand, such as India.
"This agreement is a manifestation of the new reality of the oil market - peak demand (of oil). So just as oil buyers have traditionally worried about supply security, oil suppliers are now worried about demand security,” said Amit Bhandari, a fellow of energy and environment studies at Mumbai-based Gateway House.
"By investing in Indian downstream, Aramco is ensuring market access for the future,” he added.