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Explained: Saudi Aramco, the company to which Reliance Industries will sell 20% stake

A Saudi Arabian state-owned company, Saudi Aramco has in recent years started making investments across diverse market segments, including in technology companies.

Written by Om Marathe , Edited by Explained Desk | New Delhi |
Updated: August 13, 2019 7:46:51 am
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Mukesh Ambani-led Reliance Industries Monday announced that it was selling a 20 per cent stake in its flagship oil and chemical business to Saudi Aramco, the world’s most profitable company, for an enterprise value of USD 75 billion.

With a net profit of $46.9 billion so far this year, Saudi Aramco has made more money than Apple and Alphabet (the parent company of Google) combined, this despite having witnessed a 12 per cent fall in half-year net profit.

A Saudi Arabian state-owned company, Saudi Aramco has in recent years started making investments across diverse market segments, including in technology companies.

Who are the Saudi Aramco?

Saudi Aramco is Saudi Arabia’s national oil company which is responsible for managing the nation’s staggering petroleum wealth. According to a report published by the Atlantic Council in 2016, the Gulf nation possesses the largest proven reserves of conventional oil in the world at 267 billion barrels underground, along with reserves of 900 billion barrels. Saudi Arabian crude oil also has a relatively low cost of extraction and shipment.

Heavily influenced by the Al Saud royal family, Saudi Aramco is controlled by the Supreme Council for Saudi Aramco (SCSA) led by crown prince Mohammed bin Salman, the nation’s de facto ruler.

The expansion of the company over the years has mirrored Saudi Arabia’s rise as a dominant military power in the region from its humble Bedouin roots.

Saudi Aramco’s past

Saudi Aramco first began as Aramco, short for Arabian American Oil Company, in 1933 when five American oil giants, including Chevron, got together to scout for oil reserves in Saudi Arabia after abundant quantities of the fossil fuel in neighbouring Bahrain were discovered in the previous year.

After years of exploration, Aramco discovered commercial quantities of oil in 1939. Despite going through a lull during World War II, renewed efforts saw oil production rise to 500,000 barrels per day by 1949.

In 1950, the company expanded its distribution infrastructure when it built the 1,212-kilometer Trans-Arabian Pipeline (Tapline) from Saudi Arabia to Sidon, a Mediterranean Sea port in Lebanon, making the export of oil to Europe easier.

A year later, Aramco discovered the first offshore oil field in the region, the Safaniya field, which is still believed to be the world’s largest. By the end of the decade, oil production had risen to 1 million barrels per year.

In the following decades, the Saudi Arabian government gradually began to take over the control of the company by compensating its American investors and finally obtained 100 per cent stake in 1980. In 1988, Aramco was rechristened as the Saudi Arabian Oil Company, and went on to be referred as Saudi Aramco.

Since its nationalisation, Saudi Aramco kept expanding, and began investing overseas. Currently, the company is said to account for around 87 per cent of Saudi Arabia’s budget.

Since 2016, when Crown Prince Mohammed bin Salman took charge of the company, Saudi Aramco is on the path of investing in non-oil sectors such as technology, part of the country’s plan to become less dependent on petroleum.

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