Saudi Arabia

[dan_s]

The comments below are taken from Raymond James forecast on CapEx spending in 2019. The last paragraph is extremely bullish for oil prices.

"As you may have noticed, there is one very notable omission in our 50-company survey: Saudi Aramco, which, to state the obvious, is the world's
largest oil producer. Last week, as Aramco released the prospectus for its $10 billion bond sale, the market got a first-ever glimpse at its audited
financials. As was highlighted in all the press articles about the prospectus, the most headline-grabbing metric was net income: $111 billion in
2018, making it easily the world’s most profitable company – not just in energy, but any industry. The net margin was 31% – an unheard-of level
of profitability in the energy sector, and on par with only a small number of tech and healthcare high-flyers.

As it relates to our analysis of capital spending, however, it is not the income statement that is most relevant, but rather the cash flow statement.
In 2018, Aramco's capital spending was $35 billion. This represents almost 10% of the non-U.S. spending, which makes sense given that Saudi is
currently running about 10% of the total rigs active outside of North America. It also makes Saudi the second-largest entry in our survey, behind
only PetroChina, and roughly equal to Exxon and Chevron combined. Of course, Aramco's production of 10+ million bpd is in a league of its own,
so the spending figure may seem rather modest. The prospectus has financials for the past two years, so we know that spending was up 8% in
2018, but in the absence of historical data for a longer period of time, we can only guess at how capital intensity has evolved over the past decade.
As such, we still do not have enough information at this point to include Aramco in our survey.

To shed some light on this question, we have to go behind the raw financials. The prospectus also disclosed an important - and very bullish - piece
of information about Aramco's asset base: the production capacity of Ghawar, Saudi's largest oilfield. According to Aramco, Ghawar can currently
produce 3.8 million bpd. This contrasts not only with the EIA's latest estimate (from 2017) of 5.8 million bpd, but also Aramco's own statement
(from 2004) about a production run-rate of 5 million bpd. If, in fact, Ghawar's production capacity has declined by one-quarter since 2004, that
is a very big deal! It would help explain why - as we recently discussed - Saudi oil inventories have fallen by nearly one-third over the past three
years, reaching the lowest levels of this decade. The new revelation about Ghawar adds credence to our view that worsening field productivity is
making it technically unrealistic for Saudi to sustain the record production rates that were visible (very briefly) in late 2018."