saudi-aramco-ARA-2019-english.pdf - this is energy this is...

This preview shows page 1 out of 228 pages.

Unformatted text preview: this is energy this is aramco saudi aramco annual report 2019 A category all our own Saudi Aramco is the world’s largest integrated oil and gas company, producing the energy and chemicals that drive global commerce and enhance the daily lives of people around the globe. From our proven upstream capabilities and our strategically integrated global downstream network, to our focus on technology and sustainability, we have created value that places us in a category all our own. Our behavior is what defines us – as a company, as employees, as people. Everything we do is anchored by our corporate values: excellence, safety, citizenship, integrity and accountability. Reporting period and boundary The financial and operational aspects of Saudi Aramco are covered in this Annual Report. The Annual Report covers the period from January 1, 2019 to December 31, 2019 and has been issued in both Arabic and English. In the event of any discrepancy, the Arabic version shall prevail. The print version of the Annual Report is identical to its PDF counterpart, which is available on the Company’s website at saudiaramco.com. contents 1 2 3 4 5 Saudi Aramco 6 Corporate governance 06 Chairman’s message 08 President and CEO’s foreword 108 Board of Directors 112 Senior Executives 10 History 114 Board structure and composition 12 2019 highlights 116 Audit Committee report 14 Saudi Aramco’s operations 118 Risk and HSE Committee report 18 Business model 119 Nomination Committee statement 120 Compensation Committee statement Business overview and strategy 24 Business overview 28 Market overview 29 Strategy 121 Compensation and other interests 124 Governance, risk and compliance 7 Consolidated financial statements 128 Independent auditor’s report 136 Consolidated statement of income Results and performance 137 Consolidated statement 38 CFO’s message 138 Consolidated balance sheet 39 Financial performance 139 Consolidated statement 46 Upstream 54 Downstream 62 Corporate Environmental, social and governance (ESG) 66 Sustainability at Saudi Aramco 68 Governance framework 72 Environmental stewardship 78 People and communities of comprehensive income of changes in equity 140 Consolidated statement of cash flows 141 Notes to the consolidated financial statements 8 Additional financial and legal information 202 Additional financial information 206 Reserves information 208 Regulation of the oil and gas industry in the Kingdom 212 Additional legal information 218 Forecasts and forward-looking statements 219 Terms and abbreviations Risk 88 Risk management 90 Risk factors 221 Glossary King Salman bin Abdulaziz Al-Saud The Custodian of the Two Holy Mosques His Royal Highness Prince Mohammed bin Salman bin Abdulaziz Al-Saud Crown Prince, Deputy Prime Minister and Minister of Defense of the Kingdom of Saudi Arabia saudi aramco 04 Saudi Aramco Annual Report 2019 05 saudi aramco 06 08 10 12 14 18 Chairman’s message President and CEO’s foreword History 2019 highlights Saudi Aramco’s operations Business model 06 saudi aramco chairman’s message As the need for energy continues to rise, we seek to be a force for progress and opportunity, not only by providing reliable energy, but also by investing in the sustainability of our business and the world in which we all live In 2019 Saudi Aramco made history. During the year, we achieved a number of major milestones that served to solidify Saudi Aramco’s standing as the world’s largest integrated oil and gas company. First and foremost among these milestones was our initial public offering (IPO) and listing on the Saudi Stock Exchange (Tadawul), which provided eligible investors the first-ever opportunity to directly take a stake in our company. Indeed, we are pleased to welcome all our new investors alongside our majority shareholder, the Government of Saudi Arabia. We are actively working towards providing sustainable and profitable growth, and increased value for our shareholders and customers.” In addition to completing the world’s largest IPO in 2019, we established our presence in the global capital markets through a landmark US$12 billion inaugural international bond issuance earlier in the year, as well as disclosing detailed financial, operational and reserves information for the first time in our history. The success of the Tadawul listing and the response to our global debt offering were strong votes of investor confidence in Saudi Aramco’s track record and potential for continued growth. Another important milestone specific to Saudi Aramco’s downstream strategy in 2019 was the signing of the purchase agreement to acquire a majority equity interest in Saudi Basic Industries Corporation (SABIC). Following the expected closing of this transaction in the first half of 2020, Saudi Aramco will be a major petrochemical producer globally. Operationally, in 2019 Saudi Aramco also demonstrated remarkable resilience in the face of unprecedented adversity following attacks on our facilities at Shaybah, Abqaiq and Khurais. Thankfully, in each of the incidents there were no fatalities and overall output was reduced only temporarily due to the extraordinary efforts of many individuals. Financially, Saudi Aramco once again delivered solid earnings and strong cash flows through consistent operational performance, cost management and fiscal discipline. Careful stewardship It has been almost nine decades since the Kingdom granted an initial concession to explore for oil across the remote sands of the Arabian desert. Over that time, our company has built a reputation for both safety and reliability. We are passionate about preserving the environment and are actively working towards providing sustainable and profitable growth, and increased value for our shareholders and customers. Of course, value creation means more than just dollars generated or dividends distributed – it is also measured by the positive contributions that a company makes to people, to communities and to the world as a whole. On this count, Saudi Aramco continues to excel by prudently managing the Kingdom’s reserves while meeting the daily needs of its customers around the world. Saudi Aramco Annual Report 2019 07 Saudi Aramco announces its intention to float on Tadawul As the need for energy continues to rise, we seek to be a force for progress and opportunity, not only by providing reliable energy, but also by investing in the sustainability of our business and the world in which we all live. We remain committed to leveraging technology and innovation to lower the climate impact of our industry and its products. We endeavor to strengthen our legacy of corporate responsibility and continue to manage the environmental, social and governance (ESG) issues that are important to our stakeholders and our business. Strong governance It was an honor to be appointed to serve as Chairman of the Board of Directors (Board) of this great company. I am deeply humbled by the responsibilities of the important role Saudi Aramco plays as a key contributor to the Kingdom of Saudi Arabia and its Vision 2030, as well as to global growth and prosperity. My promise to all shareholders is to work closely with my Board colleagues and with Amin and his entire management team to continue to deliver on our strategy while providing sustainable and growing dividends to our shareholders through crude oil price cycles. The strong position of Saudi Aramco today is a testament to the considerable contributions of my predecessor, H.E. Khalid A. Al-Falih, who led the company through an important time of transformation. On behalf of the Board, I thank Khalid for his dedication and for his many years of service to Saudi Aramco and to Saudi Arabia. In 2019, we also welcomed one new Board member, H.E. Nabeel M. Al-Amudi, who previously served as the Minister of Transport of Saudi Arabia. The wide range and high level of experience and expertise that our directors individually bring to the table will be vital as we continue to pursue our strategy for the future. Saudi Aramco’s achievements during the past year would not have been possible without the clear vision and continued support of the Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al-Saud, and His Royal Highness Prince Mohammed bin Salman bin Abdulaziz Al-Saud, Crown Prince, Deputy Prime Minister and Minister of Defense of the Kingdom of Saudi Arabia. Shared success On behalf of the Board, I want to take this opportunity to pay tribute to all the men and women of Saudi Aramco – not only now, but throughout its history – whose collective performance and commitment have propelled our company to the position it occupies today. I also want to thank all our new shareholders as well as our long-standing customers, partners, suppliers, and communities where we operate for their confidence in Saudi Aramco and their contributions to our shared success. H.E. Yasir O. Al-Rumayyan Chairman of the Board of Directors We achieved a number of major milestones that served to solidify Saudi Aramco’s standing as the world’s largest integrated oil and gas company.” saudi aramco 08 president and CEO’s foreword 2019 was a year in which the world was offered unprecedented insight into what this company is made of, the spirit of our people, and the principles that guide us When the definitive history of Saudi Aramco is written, 2019 will be considered exceptional for a number of reasons. Through a variety of circumstances both planned and unexpected, it was a year in which the world was offered unprecedented insight into what this company is made of, the spirit of our people, and the principles that guide us. And with this, I believe the public gained a powerful appreciation not only of how we operate, but of what Saudi Aramco means to the future of energy. In a year of both tests and triumphs, 2019 might best be remembered as the year the world came to better know Saudi Aramco.” In December, we completed Saudi Aramco’s record-breaking IPO with the listing of shares on Tadawul. This followed April’s launch of our first-ever global debt offering, which attracted significant investor interest. The response to both our IPO and debt offering can be seen as a testament to what we have worked so hard to achieve over nearly nine decades of successful operations. Either event alone would have made for a banner year; together, they represent a historic transformation. Resilience As Saudi Aramco’s global visibility was increasing, the world witnessed powerful examples of our importance to the crude oil market and the resilience that defines us when, first, our Shaybah NGL facility was attacked in August, and then in September our oil processing facilities at Abqaiq and Khurais were attacked. The damage inflicted by the September strikes resulted in a temporary shutdown of approximately 54% of Saudi Aramco’s crude oil processing capacity, which caused understandable concern in energy markets. Through an inspiring display of unity across our workforce, production was restored to pre-attack levels within 11 days and the impact on the markets proved negligible. This demonstrated how seriously Saudi Aramco takes its role and responsibility in meeting market demands. Notwithstanding bearish signals that global economic growth slowed to some degree in 2019, global demand for crude oil is expected to continue growing for years to come, with GDP growth led primarily by non-OECD Asia Pacific. Short-term market uncertainty, swings in commodity prices and unclear energy policies continue to impact long-term investment in new and traditional energy sources and production. However, we continue to maintain our commitment to invest in the future and in March 2020 we announced an increase in crude oil supply beginning April 1, and subsequently Saudi Aramco received a directive from the Government to increase our maximum sustainable capacity. Indeed, our work to build the world’s foremost integrated energy and chemicals company moved forward with resolve, and in significant ways. Preeminence Our preeminence in upstream remains the cornerstone of our business, positioning Saudi Aramco as not only the world’s leading crude oil producer by production volume, but also the lowest cost producer, one of the most reliable crude oil suppliers, and among the world’s least carbon intense sources of crude oil. In 2019, we entered into agreements that will increase hydrocarbon production capacities at the Berri and Marjan fields. The Marjan program also includes the construction of a gas plant in the Tanajib area. Further, the development of our Fadhili gas processing facility is on track to deliver an additional 2.5 bscfd of gas processing capacity upon completion in 2020. And in February 2020, we received regulatory Saudi Aramco Annual Report 2019 09 approval for the development of the Jafurah unconventional gas field in the Eastern Province, the largest unconventional gas field in the Kingdom to date, which will provide valuable feedstock for the petrochemical and metallic industries. We expect the field’s production to commence in early 2024. Growth In the downstream business, Saudi Aramco continued to make solid progress towards its long-term strategic goal of increasing its global gross refining capacity. In addition, in March 2019, Saudi Aramco entered into a purchase agreement to acquire a 70% equity stake in SABIC, which when completed will see Saudi Aramco’s chemicals business operating in more than 50 countries. Elsewhere, we acquired a 17% equity interest in Hyundai Oilbank in South Korea and saw our wholly owned subsidiary Motiva acquire 100% interest in Motiva Chemicals LLC (formerly Flint Hills Resources Port Arthur LLC) in the USA. We also continued to develop Jazan, an integrated petrochemical refinery in the Kingdom, and PRefChem, an integrated refinery and petrochemicals complex in Malaysia, with both facilities expected to become fully operational in 2020. As we move forward, Saudi Aramco will continue its commitment to being a responsible steward of the environment. Having already achieved one of the lowest upstream carbon footprints per unit of hydrocarbons produced, we continue to support the Kingdom’s efforts to achieve the objectives of the United Nations Framework Convention on climate change, the Paris Agreement, the United Nations Environment Program as well as other climate change mitigation efforts. In 2019, we proudly endorsed and signed the World Bank’s “Zero Routine Flaring by 2030” initiative. Innovation is an important contributor to our environmental stewardship as we continue to deliver new value across our business through research and development initiatives, which resulted in a record 524 U.S. patents being granted. We are also deeply committed to supporting the Kingdom’s Vision 2030 by building a stronger, more diverse and competitive energy sector. In 2019, the key measure for iktva, our local supply chain development initiative, continued to show improvement by reaching 56%. In a year of both tests and triumphs, 2019 might best be remembered as the year the world came to better know Saudi Aramco – and what it came to know could not make me prouder. Our men and women have exemplified time and again a culture of resilience, the pride they take in their work, and our total commitment to safely, reliably and responsibly deliver energy that is building a brighter tomorrow. These are qualities I have long known and cherished about Saudi Aramco, and it is tremendously rewarding to see the world gain this insight and share in this appreciation. Amin H. Nasser President and Chief Executive Officer We continue to support the Kingdom’s efforts to achieve the objectives of the United Nations Framework Convention on climate change, the Paris Agreement, the United Nations Environment Program as well as other climate change mitigation efforts.” saudi aramco 10 history Our history dates back more than 85 years, when a small group of intrepid adventurers set out to explore the deserts of Saudi Arabia 1933-1944 1945-1965 The birth of Arabian oil Expansion 1933 Oil concession agreement signed with Standard Oil of California who creates the California Arabian Standard Oil Company (CASOC) to manage the concession 1948 Standard Oil Company of New Jersey, later Exxon, purchases 30% of Aramco, and SoconyVacuum Oil Company, later Mobil, purchases 10% to help provide market outlets 1938 Oil discovered at Dammam Well No. 7 1949 Oil production hits 500 mbpd 1952 1939 Oil exports begin Aramco headquarters moved from New York City to Dhahran 1944 CASOC renamed the Arabian American Oil Company (Aramco) 1958 Oil production exceeds 1 mmbpd 1965 Oil production exceeds 2 mmbpd Saudi Aramco Annual Report 2019 11 Dhahran 1936 1966-1988 1989-2014 Making a name for ourselves 2015-2019 A global company Transformation 1971 Oil production averages 4.5 mmbpd 1989 First international downstream joint venture, in U.S. 2017 Saudi Aramco acquires full ownership of Motiva 1973 The Saudi Government acquires an initial 25% participating interest in the concession, which increases to 60% the following year 1991 First downstream venture in Asia, in South Korea 2018 Saudi Aramco becomes a joint stock company 1993 Saudi Aramco assumes the assets and operations of Saudi Arabian Marketing and Refining Company, a Government-owned in-Kingdom refining and international product marketing organization 1976 Aramco becomes the world’s leading oil producer in terms of volume produced in a single year 19801981 Saudi Government increases its participation interest in Aramco’s crude oil concession rights, production and facilities to 100% 1988 Saudi Aramco officially established 2009 Petro Rabigh, Saudi Aramco’s first petrochemical plant, begins production 2011 Sadara Chemical Company formed 2014 SATORP and YASREF refineries come online Saudi Aramco acquires full ownership of ARLANXEO 2019 Saudi Aramco enters into a purchase agreement to acquire a 70% equity interest in SABIC Saudi Aramco issues $12.0 billion of Senior Unsecured Notes listed on the London Stock Exchange Saudi Aramco becomes a public company with shares listed on Tadawul saudi aramco 12 2019 highlights Our work to build the world’s foremost integrated energy and chemicals company moved forward in 2019 with resolve, and in significant ways February March Saudi Aramco signs agreement to form the largest Sino-foreign joint venture with NORINCO and Panjin Sincen in China Saudi Aramco showcases innovative engine technologies at Geneva International Motor Show Saudi Aramco signs agreements to acquire stake in Zhejiang Integrated Refining & Petrochemical Complex Saudi Aramco signs purchase agreement to acquire a 70% equity stake in SABIC from the Public Investment Fund of Saudi Arabia (PIF) August September Saudi Aramco publicly reports first-ever half-year financial results, with net income of $46.9 billion H.E. Yasir Othman Al-Rumayyan named Chairman of the Board New Aramco Singapore office marks regional downstream expansion and integration Following the September 14 attacks on Abqaiq and Khurais plants, Saudi Aramco restores production to pre-attack output on September 25 Saudi Aramco completes the acquisition of the remaining 50% equity interest in the SASREF refining joint venture, from Shell Saudi Aramco Annual Report 2019 13 Saudi Aramco goes public April June July Saudi Aramco issues $12.0 billion of Senior Unsecured Notes listed on the London Stock Exchange Aramco Trading Company opens Fujairah office in UAE Saudi Aramco awards contracts valued at $18 billion to increase Marjan and Berri oilfields’ production capacity by 550 mbpd and 2.5 bscfd of gas Aramco Trading signs Supply Agreement with “PKN Orlen”, Poland’s leading oil refiner, enhancing downstream integration in Europe Saudi Aramco and Air Products inaugurate Saudi Arabia’s first hydrogen fueling station Saudi Aramco inaugurates new complex with S-Oil in Ulsan, South Korea, advancing its...
View Full Document

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture