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MEOG Commentary MEOG
aramco is, however, the world’s most profita- ble company and has one of the lowest per barrel extraction fees globally. Its profitability signifi- cantly improved in 2017 as the state reduced the company’s tax rate to 50% from 85%, and started to compensate the company for income forgone as a result of aramco’s selling some of its prod- ucts to domestic customers at regulated prices.
The company’s profile is strengthened by its move away from upstream production through the acquisition of the government’s 70% stake in Saudi arabian Basic Industries Corp. (SaBIC), one of the world’s largest petrochemical pro- ducers. This fits into the company’s vertical integration strategy and should help diversify its earnings.
Keen to build investor confidence, the weekend’s press conference saw a significant announcement that is indicative of the impor- tance of the downstream business. Tax for the downstream arm will receive a significant reduc- tion – from the current 50%-85% multi-tiered structure to the general corporate tax rate of
20%. The cut comes with the proviso that ara- mco consolidates its downstream business under a separate, wholly owned subsidiary before the end of 2024, as reported by Reuters.
In addition, the period for which aramco will not have to pay royalties on condensate produc- tion was extended by another 10 years, from the end of the current period, which expires on Janu- ary 1, 2023, and the company said that this could be extended by the same period again, subject to government approval.
In 2018, the company boasted liquids pro- duction and total hydrocarbon production averaging 11.6mn and 13.6mn barrels of oil equivalent per day (boepd) respectively.
aramco estimates its proven liquids reserves at 227bn barrels and its total hydrocarbon reserves at 257bn barrels of oil equivalent (boe), which implies a reserve life of 52 years, though greenfield exploration efforts have been limited in recent years, with the focus instead being directed towards maintaining and adding to production capacity.
Aramco’s CEO Amin Nasser and Chairman Yasir Al-Rumayyan spoke to press at the IPO announcement.
Saudi Arabian oilfields Source: Aramco
Week 44 05•November•2019 w w w . N E W S B A S E . c o m
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