How Saudi Aramco became the world's biggest oil company

Opening up shares in the state oil firm to domestic and global investors has helped its $3tn valuation, leaving it in the top three firms by market capitalisation, behind only US tech giants

Officials celebrate the first public offering of Aramco on the stock market in Riyadh, December 11, 2019.

How Saudi Aramco became the world's biggest oil company

Amer Ziab Al-Tamimi

last update on 22 Mar 2024

Aramco has long been one of the main pillars of Saudi Arabia's economy. The industry it leads transformed the country into a powerhouse for oil production and export and gave it global significance.

Widely seen as the most influential company in world energy markets, it was founded in 1933, when a concession agreement was signed between the Kingdom of Saudi Arabia and the Standard Oil Company of California (SoCal).

The company responsible for implementing the deal was named the Arabian American Oil Company, shortened to Aramco. It was entrusted with extracting and exporting oil and gas throughout Saudi territory.

In 2022, Aramco became the world's second-largest oil company by revenue. For years, it has achieved some of the best financial results in the oil business globally. Industry sources estimate Aramco's proven oil reserves at 270 billion barrels.

From 1973 to 2024, Saudi Arabia's average daily oil production was approximately 8.3 million barrels.

The year 1973 is considered important in the history of the oil economy and energy economics in general after the October War, which prompted many countries to reconsider their relationships with foreign oil companies.

Egyptian troops pose atop a bunker on which they just planted their flag on the Israeli Bar Lev line east of the Suez Canal, Egypt, on Oct. 13, 1973.

Several producing countries boycotted oil-importing countries for a short time due to the war, leading to a significant price increase after a long period of previous price stability.

First private, then part-public

The state bought Aramco in phases from 1973 when 25% of the company was acquired. Public ownership rose to 60% in 1976 and 100% by 1980.

Since then, the government has become open to selling part of its holding to private investors. In 2021, it launched an initial public offering, or IPO, when 5% of Aramco’s shares were put up for sale, raising $30bn in proceeds.

The IPO provided a way into the oil industry for the Saudi private sector. It brought new capital into this vital part of the national economy, opening up one of the biggest names in the global industry, which has a vital role in management, marketing, business development, and the support of innovative initiatives to diversify its product base.

As signalled by His Royal Highness Prince Mohammed bin Salman, the Saudi Crown Prince of Saudi Arabia and President of the Council of Ministers, more share sales could follow.

Around 8% of the state’s stake was transferred into investment portfolios owned by the Public Investment Fund, the Saudi sovereign wealth fund. That leaves direct state ownership in Aramco at 82.2%.

Aramco has achieved some of the best financial results in the global oil business. Industry sources estimate its proven oil reserves at 270 billion barrels.

A $3tn milestone

Aramco has become the world's largest oil company by market capitalisation and the third across all sectors, behind US tech giants Microsoft and Apple. Its shares are worth around $3tn in total.

That marks the company's global scale and successful development and management. Successive Aramco initiatives and policies have built up its professional capacity and transmitted vital know-how through the firm, which employs 70,000 people.

Domestic and international training programmes have been used, and the firm's Upstream Professional Development Centre was established to develop intensive and long-term learning.

Employee training is carried out using the latest scientific and professional innovations as well as addressing the latest technological applications to enhance production efficiency and quality.

Training programmes are not limited to new employees but also include senior executives and company leaders. They train high school and vocational institute students to be able to take on different positions within the company.

Profits and dividends

Aramco made a profit of $161bn in 2022, which fell to $121bn in 2023, a smaller-than-expected drop of 24.7% reflecting lower oil prices. The company upped its dividend payout ratio to 30% in 2022 and distributed about $98bn.

That came even as Aramco dealt with the market fluctuations in oil prices that the entire industry faces. It has also complied with the production cut decisions adopted by OPEC and its six non-OPEC partners to maintain oil price stability.

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This mandatory and voluntary cut will certainly affect revenues. However, the company still has the ability to meet the needs of the oil market and supply-demand dynamics. Saudi Arabia currently produces 9 million barrels per day, with a production capacity of up to 12 million barrels per day.

This means that Saudi Arabia can react flexibly to any oil demand increase or supply decrease from other producing countries due to technical, security, political, or economic reasons. It is known as the producer that can act fast to keep the world supplied with energy and its oil market in balance.

Aramco also has state-of-the-art technical and management capabilities to maximise its financial results and achieve profits that will provide good dividends for shareholders in the years to come.

Future focused

Just a few years ago, Aramco was on track to increase production capacity to 13 million barrels per day by 2027. To enhance production capacity, fields were planned to be invested in.

However, global economic developments—including the focus on developing alternative energy sources and the company's adoption of plans for carbon neutrality by 2050—forced it to reconsider these plans.

This decision demonstrated Aramco's insight into the shifts underway in the oil industry, energy economics, global concerns over environmental issues, and the elimination of carbon emissions.

In the short term, Saudi Arabia, through Aramco, remains committed to reducing production by 1 million barrels per day. This decision is expected to be reconsidered in early April, at the end of the first quarter of this year.

Aramco has become the world's largest oil company by market capitalisation and the third across all sectors, behind US tech giants Microsoft and Apple.

The reduction can be extended depending on changes in conditions in the oil market and the global economy. The International Energy Agency predicts global oil demand will increase by about 1.1 million barrels per day.

These forecasts are lower than those from the 2023 forecast, which estimates demand growth at 2.3 million barrels per day. They remain speculative, as the economic factors in consumer countries are the main factors affecting the market.

Other geopolitical and security factors may also affect supply levels or supply chains, such as the Houthi harassment of ships and tankers in the Red Sea in Yemen, disrupting oil deliveries to consumer countries, especially in Europe.

Foot on the gas

Aramco has also increased its natural gas production capacity, with total gas production, including natural gas and ethane, reaching 10.67bn cubic feet per day, up from 10.61bn cubic feet per day in 2022. In addition, chemical production also improved, reaching 59.6 million tonnes annually in 2023, compared to 56.3 million tonnes in 2022.

As for refining, the level remains at 4.1 million barrels per day. Renewable energy is one of Aramco's goals, with a target of producing 12 gigawatts by 2030. This is part of the company's efforts to adapt to consumer needs and future developments in the industry.

Aramco has become a prominent player in its operations and is one of the most important oil companies in the world. It has also strengthened its capital value in financial markets and provided opportunities for individuals and local and foreign organizations to own equity shares.

The company's ability to adapt to changes in energy economics and environmental protection requirements adds to its strengths. These elements are expected to enhance its performance over the next years.

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