Saudi Aramco Is World’s Most Profitable Company, Far Exceeding Apple | Hacker News Reader

Saudi Aramco Is World’s Most Profitable Company, Far Exceeding Apple

nytimes.com

131 pointsdkyc94 comments

Saudi Aramco is essentially part of the Saudi government, not an apples to apples comparison IMO. If they're going to discount the free mineral rights given to Aramco, then they should also account for the social services that the government uses Aramco to pay for, because without the social services, you're not getting free mineral rights.

We sell mineral rights in the US for next to nothing, so is it really exceptional?

So if oil is found in Fed land in Alaska, Exxon will get to pump it for "next to nothing"? No special taxes, per barrel fee?

It's not actually free, but my vague memory is that most fees are something like 20% of the going market rate on private land.

Alaska has a profit sharing deal with its residents so they always get some cash for the exploitation of lands.

The rest of the US is a different story.

Wyoming has mineral severance taxes to the point that there is no income tax in the state. Over 50% of the state's revenue comes from mineral severance. There is also a permanent trust there.

Colorado gets something like $100 million per year from mineral severance.

I'd be shocked if other oil producing states didn't collect severance taxes. What state are you referring to that doesn't collect anything?

Ironically, there's only one state without a mineral severance tax, and it's California.

Wow, today I learned something. I am shocked that deep red states (Alaska, Wyoming, Texas) tax something that a deep blue state (California) does not.

Land acquisition costs are very low in the US (this is done through a competitive bidding process when new tracts are offered).

Royalties to the government are in the 20-30% range on a revenue basis, plus standard CIT.

This is for new land for exploration- e.g. no proven reserves at the time of the sale. If there are known reserves, then the price would be much higher but the government is not typically in the business of proving reserves themselves.

I seem to recall reading government reports about proven reserves. I thought we had a geological department that investigated all sorts of mineral / oil / natural gas resources.

Yes, there are tons of geologic maps produced by the government that are used by oil & gas companies. Most states require data from well logs to be reported too.

I think what parent is possibly talking about is when the BLM puts up tracts for mineral lease auction that nobody wants (no economically recoverable reserves). https://www.eenews.net/stories/1060099219

coal is at 12%(on BLM land), depending on who you lease from, Gold can be under 1%. What is as high as 20-30?

You are right- I am thinking of the typical royalties paid to private land owners onshore (either 1/8th or 1/4th).

Offshore federal royalties are typically ~12.5-18.5% [1]

[1] https://www.boem.gov/note07062017/

>> apples to apples comparison

I really enjoy this in the context of comparing to Apple

I guess it depends on which numbers you're using. The $111 billion quoted number for net income does not include the $55.6 billion in royalties to the Kingdom that Aramco records as an expense.

Yes, the royal family is the only shareholder and the government, so it's splitting hairs in the sense they're getting the money from those mineral rights, on the other hand its even more money. But if they sold the whole kit and kaboodle last year, whoever owned it would make $111B and the Kingdom would get $55.6B.

That sounds like an arrangement very similar to Venezuela's oil industry, except with a level of personal enrichment far beyond the structure of Venezuela's industry, which has enjoyed constant opprobrium as the work of a dictator.

Nationalized, crown or state-owned corporations are still corporations. The fact that they get large govt. subsidies or discounts (if they do, some don't) is part of the deal. Nationalized corporations also have their downsides like frequent government/bureaucratic interventions that make no business sense and having to fork a lot of revenue for governmental purposes when needed. You can find a lot of nationalized corporations that don't do so well or are essentially failing.

As quoted: “Aramco is wholly-owned by the state and is expected to remain largely under government ownership even after any potential IPO in the future,” Akbar added. “While there is a clear track record of Aramco having been run as a commercially independent company, the government’s budget is highly reliant upon contributions from Aramco in the form of royalties, taxes and dividends.” in below article:

https://www.cnbc.com/2019/04/01/saudi-aramco-made-111-billio...

You might as well label the Fed a corporation officially then, and do a real compare and contrast.

If I'm reading this correctly, the Fed and its member banks had $49 billion of net income through the first nine months of 2018, before remittances to the U.S. Treasury.

https://www.federalreserve.gov/aboutthefed/2018-september-fe...

Very nice showing. If you annualize the Fed's nine-month rate, it's probably slightly ahead of Apple's money-making rate, which is the best in the U.S. corporate sector. (Apple reported $59 billion in net income for the full year ended Sept. 29, 2018.)

Even so, the Fed can't quite crank out profits at an Aramco tempo.

The Fed is effectively pulling money out of thin air, and profit sharing with it's largest partners - big banks, something which Saudi Aramco is both unable and unwilling to accomplish.

98% of Fed profits go directly to the Federal Government treasury, not big banks.

> not an apples to apples comparison IMO

I see what you did there.

This isn't terribly surprising to me. Pulling money out of the ground is a high-margin, low (relative) cost deal. Like selling $1 for $2.

I do wonder how many people know that the wealthiest companies are private, just like how the wealthiest people/families/syndicates do not publish nor reveal their wealth in any meaningful way. It's like the universe's dark matter. At some point, money becomes power, and power always whispers.

This is a very true statement. And in a very literal way, the dark matter analogy is spot on.

Oil extraction has wildly varying costs. Saudi Arabia is lucky in that they have large deposits that are quite shallow. As such Saudi Arabia can produce oil with a very low marginal cost per barrel ($15 or $20). Compare that to tar sands, offshore rigs or shale gas with horizontal drilling, exotic injection techniques, high water usage, deeper oil deposits, saturation divers and royalties on the extraction techniques. North American oil producers have much tighter margins.

Yeah, but many of those are fixed costs, given immutable characteristics of the fields themselves, which means given a certain profitability threshold, you have a very predictable income stream.

That given of course varies on the highly variable price of petroleum commodities, but given the oligopolistic nature of the O&G industry, getting subsidies to tide over the bad times and prevent extensive capital depreciation is reasonably easy.

Saudis make a lot of crude, and the crude they pump is good quality. Hence, they print money.

The fixed low marginal costs of Saudi infrastructure also allows them to keep the higher cost producers on a tight leash. If US domestic production gets too robust for their liking; they can simply enforce a price regime low enough to put other producers out of profitability, and hold it there long enough that even the most cash rich extractors will pack it in and attempt to shift that capital to other ventures.

OPEC used to have that power, but not really any longer. U.S. / Canada production has steadily lowered production costs, cheap oil will bankrupt OPEC countries before it kills off US production.

The glut of domestic oil all comes with higher extraction costs. While it's unlikely an OPEC embargo could affect the United States in the same way it did in the 70s, Saudi Arabia specifically can sell oil at a price that is mildly profitable for them but a loss for US producers. OPEC no longer operates as a perfect cartel; members cheat on the quotas that are set and not all OPEC members can hold the line as well as KSA can.

With all that said, the 2015 oil price collapse did lead to significant reductions in domestic production, and it was partially driven by Saudi Arabia.

US/Canada is a net oil exporter now, so their power is pretty limited in an embargo style situation.

Also, unlike the 1970s Saudi now has a much larger and ridiculously fast growing population - growing anywhere between 2 and 6% per annum since the 1980s. There is an enormous welfare state with very few taxes collected (on the basis the oil wealth pays for everything), but with a population growing so fast it is stretching the budget.

This means KSAs power to hold prices low actually probably hurts them more than the US now - the social contract in KSA is that the government looks after you, and if you suddenly stop getting healthcare/housing etc because of a OPEC/US oil, it will start destabilising the country which obviously the royal family as terrified of.

KSA also has access to very cheap labor (relatively slave like).

This is true, but the relatively slave like cheap labor does still require robust social services, which the kingdom pays for with oil revenue.

what other private companies are known to be significantly more profitable than Apple?

What private organizations have assets which compounded in value over centuries?

Is the Catholic Church a private organization in this context?

One that surprised me was Fidelity investments. It's huge company held privately by a single family. Not centuries old and probably nowhere near as profitable as Apple though.

European insurance companies. The Hudson Bay Company, maybe?

There are restaurants in the U.S. that are a couple of centuries old. They might own the building by now.

I don't know. That's the point :)

> I do wonder how many people know that the wealthiest companies are private

Well then this was a misleading thing to say. You don't know that this is true

You are correct, and I apologize for making such an assertion without any evidence.

I think what I meant more was the conflation of wealth and power, and the need to look beyond just the name of a certain corporation. Autocratic rulers don't technically run a corporation nor sit on the board, but I doubt anybody would defy their orders if asked. In that sense, they do "own" the corporation. This is also not mentioning the nature of shell and holding corporations which obfuscate liability and ownership, but operate according to their owner's wishes despite their disjoint legal nature.

But no I can't find any proof that any are bigger than the largest publicly traded corporations, so again, sorry.

Cargill is a pretty big private company, but not sure how they would compare to Apple.

Much smaller. Their revenues are in the range of $115 billion/year (compared to ~265 billion for Apple), but they are in a range of much lower margin businesses. Meanwhile, Apple sells a line of extremely high margin items. It's estimated that iphone X parts cost around $370 to make, for a phone that sells for $1000.

Cargill

> Founded in 1865, it is the largest privately held corporation in the United States in terms of revenue. If it were a public company, it would rank, as of 2015, number 15 on the Fortune 500, behind McKesson and ahead of AT&T.

https://en.wikipedia.org/wiki/Cargill

The OP's claim about the "largest companies being private" isn't exactly true...

Just a caveat, that’s in term of revenue.

McKesson is a drug wholesaler, so if they buy a case of an expensive drug for $999K and sell it for $1M, that’s $1M in revenue.

Im not sure what the parent is talking about Cargill, the largest private company in the US, is much smaller than Apple is.

Koch industries is "probably" high, also an extraction company. Cargill is another (livestock, energy trading) But you don't know profits.

>> I do wonder how many people know that the wealthiest companies are private

Some of the largest companies are state-run. If that's what you mean by "private" companies, then yes this is true. But I think that when people say "private" company, they generally envision wealthy individual or family owners, not state owned entities.

If by private, you do mean wealthy individuals/families and not states, then this is doubtful. Apple sold over $200 million iphones last year at a large profit margin, and that is why they are a giant company. Even with exceptionally high revenues per employee, Apple employs over 100,000 people. It's not easy to just disguise what you're doing at that level. There are definitely some very wealthy families out there whose finances are opaque. However, it's doubtful that any of them are secretly running companies anywhere near the scale of Apple.

By private, he means not public (i.e. no shares that the public can buy). It can still be owned by 100s of people (e.g. "employee owned").

"power always whispers"

Isn't this exactly the opposite of how power has worked for 99% of human history? In order to establish exactly who's in charge, rulers and those in power have:

- Toured their lands

- Displayed strength via military

- Distributed their likeness (coinage, statues, paintings)

- Spread their messages via radio/television

- Established themselves as the head of organized religion

- Required homage

- Positioned themselves as figures of veneration

Historically, powerful lobbies such as the church, noble classes and guilds did the same types of things.

In modern times, the same thing happens - Putin isn't particularly shy about his degree of power (but I suppose he is deceptive about his wealth).

Power must always be exercised to be retained, yes. But I doubt power must be publicly exercised in order to remain viable. And rulers never rule, they hold court, and they must retain the favor of the court to be viable. See "Rules for Rulers": https://www.youtube.com/watch?v=rStL7niR7gs

I believe one example of this was how Napoleon III lost the favor of Alexis de Tocqueville, and hence was toppled as Emperor of France: https://en.wikipedia.org/wiki/Alexis_de_Tocqueville

Could you name some of these private companies? I can’t think of any private (i.e. neither public or government owned) company comparable to Apple, Walmart, or large oil companies.

Inter IKEA. iirc they own, among the largest furniture company in the world, a bank, real estate...and so on. And they are very private...

IKEA us also Sweden’s largest food exporter (or so I’m told).

I have a hard time believing IKEA is worth anywhere close to what the big tech giants are worth.

Ikea's annual revenue is about 38 billion Euros. That would rank it about #200 on the Fortune 500 global list, in terms of revenue. By Fortune's tally, at least, all of the top 10 are either state-controlled energy companies, auto companies, WalMart or Berkshire Hathaway.

Big, fully private companies are quite fascinating. (I think we're settling on a definition that involves a tight inner circle of ownership, with no stock-market listing and no government control). But they are pretty lightly represented in revenue/size-based lists like the Fortune 500.

There's Cargill and Louis Dreyfus, which control a large amount of the global agriculture trade (and 1/4 of the main cast of Seinfeld ;) - and there's not a whole lot of insight into at least Cargill.

It's not hard to be profitable when you're not paying for your externalities...

In being the factory of the world, it's the Chinese who pay while we all enjoy our shiny new phones.

What externalities are you talking about? Sure these poor workers are suffering for our comfort, but there must be poor neighbors closer to you that are more to be pitied (they depend on you more than the Chinese). Also, the externalities of Saudi Aramco are mostly about the environment (climate, air pollution, war, terrorism, dictatorship). That's a whole different story, isn't it?

Either it stops being profitable because we stop using its product and civilization survives, or it stops being profitable because we stop using its product because civilization collapses. Either way, the long term outlook isn't good.

This could essentially be said about any corporation.

I don't think the latter is true. Crude oil is still a great source of fuel and even in the worst case society collapse people will still need fire.

That's making the rather bold assumption that the climate will be habitable for humankind.

I can see a potential future where we destroy the environment so badly we decide to permanently live indoors with artificial atmosphere, yet we still burn oil outdoors...

That's the case for every corporation ever!

Oil is a wonderful resource with many uses that will remain valuable long after we stop relying on fossil fuels; it forms the basis for most of chemical industry from plastics to pharmaceuticals. It's just that currently it's so extremely cheap and abundant that we simply burn most of it.

If aramco is a company, so is the united states IMHO

Right... if we are counting nationalized entities it's not a fair comparison really.

And where do you draw the line?

Most US based telCos today are based on a government backed monopoly of wireless spectrum and all of them received several billions dollars until last year to improve infrastructure (which none of them did, and had zero consequences)

source please?

For what? Both are widely known facts.

https://en.wikipedia.org/wiki/Universal_Service_Fund

https://www.wired.com/story/the-dangers-of-big-city-subsidie...

https://arstechnica.com/tech-policy/2018/08/isps-want-to-be-...

https://www.reddit.com/r/explainlikeimfive/comments/6c5e97/e...

    https://www.reddit.com/r/explainlikeimfive/comments/6c5e97/eli5_how_were_isps_able_to_pocket_the_200_billion/

If we're counting anything with a "government backed monopoly," then any company that owns a patent counts.

Or a trademark...

You know there are almost 3 nationwide LTE networks?

What would you count as improving infrastructure?

Or are you talking about subsidies to wireline business not resulting in enough fiber and such?

Several companies, but yes.

We could then classify the exporting of Dollars as the 2nd most profitable "business" [0]

"Last year, the United States exported $65.3 billion of its currency — mostly $100 bills."

"Printing dollars, after all, is a very profitable business. Ranked by value, greenbacks finished second on the list of America’s most valuable export products, just behind refined petroleum. But exporting money is much more profitable. It costs the federal government around 14 cents to produce a $100 bill, and a few more cents to send it overseas.

In exchange for each of those bills, the United States gets an interest-free loan of $100. At the end of 2018, foreign holdings of American currency totaled $773.9 billion."

[0] https://www.nytimes.com/2019/03/09/opinion/sunday/money-doll...

> Somewhere around two-thirds of Saudi nationals work for the government. Many of these people do virtually nothing, they are employed simply for social purposes, to keep the population happy. Thus, their incomes are very similar to universal basic incomes. The Saudi government gets 90 percent of its income from oil revenue, which given the ease of producing oil in Saudi Arabia and the use of foreign partners to do much of the producing makes this revenue source pretty similar to simply printing money. In Saudi Arabia money doesn’t grow on trees, but it does bubble out of the ground.

Saudi has been running a real large scale UBI experiment for decades, showing how you end up a stagnant, backwards and authoritarian society.

https://www.forbes.com/sites/jeffreydorfman/2016/10/03/saudi...

'End up?' What do you think the Saudi economy/society was like before the oil?

> Until the 1960s, most of the population was nomadic or seminomadic; due to rapid economic and urban growth, more than 95% of the population is now settled.

you would expect that the massive population explosion, enrichment and urbanization would empower at least some liberalization some 3 generations later, or at least catch up with average middle east culture

Your quote describes a rapid economic growth, yet you were telling us the country had stagnated and gone backwards since the oil revenue came, in your first comment?

i said society, not economy

I'm very puzzled, if they're generating $25 billion in profit/quarter, why do they need to get a loan? They could just pocket the earnings for a couple months.

But for how long?

Right? Didn't all the peak oil fanatics say we'd run of oil years ago?

Peak "conventional" oil has been reached years ago. The reason why oil production keeps rising is because Big Money finances shale oil and tar sands, both of which are highly unprofitable.

For some reasons, peak oil fanatics never thought Wall Street (or the Fed?) would lend free money to money-losing ventures that are literally ruining our planet. Tell me, who are the fanatics again?

They are not “highly unprofitable.”

Trust me, oil companies are not doing this for charity. Of course, when the price of oil is driven downwards on purpose by the Saudis ramping up production (as it was a few years ago), these higher cost methods of extraction can become unprofitable. But the price of oil is again in a range where these methods are profitable.

We probably will never run out of oil, because we find new deposits, new ways of extraction, etc. What people have said and are saying is that with the deposits we know of and with current equipment we will run out in X years.

The amount of proven oil reserves is higher now than at any time in history. IOW, humans are discovering new oil at a faster rate than we are pumping it out of the ground.

Weirdly behind very closed doors it's said to still be run as a modern American western company. No body wants to mess with what works.

Of course the trillion dollar question is how much oil is truly left?

If those are rules we are playing by I would say the US Mint is the most profitable company.

To bad they will never publish their books.

Fortunately Apple doesn't use their wealth to assassinate detractors...

for now, but who knows how things will look like in a 100 years

Even in 2019, one mostly doesn't assassinate detractors in the US. Instead, they're bought off or discredited.

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