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Saudi Aramco: Why Was Fitch’s Rating Capped?

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Saudi Aramco’s rating

Fitch assigned an “A+” rating on Saudi Aramco’s IDR. The company’s standalone profile corresponds to an “AA+” rating due to the link between the company and the sovereign. The state influences Saudi Aramco’s production, dividends, and taxation.

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Taxation

Saudi Aramco is an important source of tax and forex revenues for the state. Fitch estimates that the company accounted for ~70% of Saudi Arabia’s budget revenues in 2015–2017. During the same period, Saudi Aramco accounted for ~80% of Saudi Arabia’s current external receipts. The powerful link between the company and the state is expected to keep Saudi Aramco’s ratings capped to the sovereign level rating.

OPEC’s cuts

Saudi Aramco is impacted by OPEC’s production cuts. In 2018, the company produced 10.3 MMbpd (million barrels per day) of crude oil, which was ~1.7 MMbpd less than its maximum capacity. In 2019, Saudi Aramco’s production will likely be impacted by ongoing production cuts. The cuts might get extended beyond June, which could impact the company’s production.

Dividends

Saudi Aramco paid $58 billion in dividends in 2018. The dividends were huge compared to integrated energy companies like ExxonMobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP).

ExxonMobil, the largest US integrated company, paid a dividend of ~$13.8 billion in 2018. Chevron, Shell, and BP spent $8.5 billion, $15.7 billion, and $6.7 billion, respectively, on dividends in 2018.

Saudi Aramco is impacted by the huge payment through dividends and taxes to the government. The company’s adherence to OPEC’s policy impacts its upstream production levels.

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