Aramco's True Breakeven Price -- Oilprice -- April 7, 2019

Updates

April 8, 2019: in the original post I wrote that I assumed Saudi Arabia could increase the size of its bond sale. Apparently it did:

Original Post

Before we get started, my two cents: the budget requirements for the Kingdom of Saudi Arabia is more important / more relevant than the "true" breakeven price.

From oilprice. Datapoints:

• Aramco information becoming available after the company's bond offering this past week; bond offering --
• $30 billion demand
• proposed offering: $10 billion
• one assumes they increase the size of the offering
• data from the bond filing
• Aramco, 2018, world's most profitable company
• earnings: $111 billion
• revenue: $356 billion
• free cash flow: $76 billion 
• Brent averaged $71.34/bbl
• Apple, second most profitable: $$60 billion
• ExxonMobil: $21 billion
• but note: Saudi Aramco struggled to break even in 2016 when Brent crude averaged about $45 / bbl
• net income: $13 billion
• free cash flow: $2 billion
• conclusion: Aramco's breakeven price is just about $40/bbl
• this author called OPEC's 2016 to open the spigot a "trillion dollar miscalculation"
• I called it a "trillion dollar mistake"
• author's bottom line: "we will likely never again see an extended period of time with world oil prices below $45, because OPEC will have to take action at that point to prop up prices as the cartel did in 2016 

It would be interesting to see some analysis of this. It's hard to believe that the breakeven price for Aramco is $45/bbl when all these years we've been told lifting costs for Saudi Arabia have been around $10/bbl. Something tells me there may be more to this story. As a starting point, does the $45/bbl breakeven cost include the "taxes" the company must pay to the government?

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