Saudi oil giant is world’s most valuable company, while paying 10 times royalty Guyana charges ExxonMobil

Saudi Aramco, the State owned oil company of the Kingdom of Saudi Arabia, is the most valuable company in the world, according to a Reuters report published earlier this month.

The company’s public offering pricing of its shares indicates that it is worth US$1.7 trillion, easily overtaking Apple as the most valuable company in the world.

Many would link an oil company’s success to favourable terms from Governments for which it operates but information published by the New York-based publication, Bloomberg indicate that Saudi Arabia has been squeezing the company for revenue, and the company is still thriving. For years, the company has been paying a flat royalty of 20 percent, up until early 2017, when the Saudi Government introduced a sliding scale, Bloomberg reported.

The system charges a minimum royalty of 20 percent of revenue for oil prices up to $70 a barrel, 40 percent between $70 and $100, and 50 percent when the crude price exceeds $100 a barrel.

Furthermore, Bloomberg reported that Saudi Arabia raised royalties on its oil company by switching the benchmark to calculate the royalties to Brent oil. The New York publication stated that changing the benchmark to Brent would mean that the Saudi government could get a higher royalty total from Aramco than before, due to the fact that Brent is more expensive than Saudi oil.

All that expense and Saudi Aramco still managed to make itself the most valuable company in the world. The revelation gives new life to arguments for an increase in the industry low two percent royalty that Guyana is charging ExxonMobil for its operations on the Stabroek Block.

Critics have argued that the rate is not enough for a Government who has given Exxon a deal that will make it very rich.

Saudi Aramco is paying a royalty that is 10 times higher than what Guyana charges ExxonMobil. Proponents of a higher royalty have long faced arguments that higher royalties could threaten the sustainability of the local operations of a company like ExxonMobil. But Saudi Aramco, whose oil is more expensive to extract than Guyana’s Liza crude, is thriving.

Bloomberg reported that the major income streams from the oil industry for Saudi Arabia are royalties and taxes. But in Guyana’s case, the deal it has with Exxon is a Production Sharing Agreement that splits profits down the middle after Exxon recovers its costs.

The key differences in the fiscal regimes of the two countries, to extract economic benefits from the sector, provide a clear view that Guyana’s regime is less favourable to it than Saudi Arabia’s.
In Guyana’s case, the International Monetary Fund (IMF) has projected in its Article IV consultation that Guyana will only get about 14 percent of the value from the Liza-1 and Liza-2 projects, considering royalties and other revenue streams.

But in Saudi Arabia’s case, a minimum rate of 20 percent guarantees the Kingdom at least 20 percent of the value of every barrel on royalty alone. That doesn’t even count in the taxes the Kingdom also has to collect from Saudi Aramco. This all means that through its fiscal regime, which includes a high royalty, Saudi Arabia gets a higher portion of the value of its reserves than Guyana is getting from ExxonMobil for its Liza crude.