Professional Research Paper on Saudi Aramco Company

Executive Summary

Aramco has been the global leader in the oil and gas sector which operates with the vision of leading integrated energy and chemicals safely and sustainably in a reliable manner. The company after delays in international IPO announced it finally in late 2019 which was expected to raise $100 billion however the response of investors was not positive. Transparency and valuation have been the greatest obstacles since the announcement of the Aramco IPO almost four years ago, and in the end, they have been the undoing of the company. The company is missing a major strategic communication strategy to maintain and build a relationship with investors. This paper overviews the background of the company while also discussing its business objective and problem in detail, building research objectives and questions and formulating data evaluation techniques.

Company Background on Saudi Aramco

Saudi Aramco the fully integrated group, has been the global leader in oil and gas production in Saudi Arabia. It is an established national petroleum corporation (NOC) with operations covering exploration and production, manufacturing and recycling of petrochemicals, oil, and finished materials shipping, processed products and services like transportation, financing and insurance and aviation. It provides a wide variety of capabilities and services (Saudi Aramco, 2020). The Founding Father of Saudi Arabia and its first King Abdul – Aziz Bin Saud dreamt to expand the boundaries of Saudi Arabia and take control of its people has been the strategic guiding force in beginning the tale of Aramco (Almana, 1982; Clark, 2006). The strategic rivalries of the “old” British Empire against the emergent “new” influence of the US were well known and King Abdul-Aiziz or the West Ibn Saud called him, decided that the US would lay the groundwork for the Saudi oil industry (Rihani, 1928; Dann, 1988; Anderson Irvine, 1981). For the objectives to be accomplished the first pioneers of the project committed heavily on it, the pioneers like Frank Holmes who can be called the father of the Saudi Arabian Oil Company had a prolong vision for the company. Other pioneers being Charles Crane and famous geologist Max Steineke (who has one of the guest houses of Saudi Aramco named after him), Bert Miller, and Dr.Arnold Heim (Cheney, 1958; Hamilton, 1962; Hapgood, 2001).

The Kings Grandson (Crown Prince Mohammad Bin Salman bin Abdul-Aziz) had a vision for 2030 in the year 2016. Saudi Aramco operations and limitless possibilities were envisioned by the Crown Prince Mohammed bin Salman, which aims to draw international investments in the Saudi market, and was expected to launch an initial public offering in 2017. However, the move was reversed and postponed repeatedly (Ramady, 2018). Two of the oil processing facilities of Saudi Aramco, including its biggest, in Abqaiq, were attacked in September 2019, causing considerable damage and disrupting its production capacity temporarily. In weeks, the performance of the company was fully re-established and the decision to step forward with the IPO was announced in November 2019. Saudi Aramco opened its doors to date with the largest IPO in Saudi Arabia History, However the initial valuation of the $2 Trillion could have made this the largest IPO globally but the initial targets were not met (Zeidan, 2020).

The influential national position of Saudi Aramco represents its ability and provides it with significant political resources. Saudi Aramco is given the potential to shine by its aggressive industrial diversification agenda and also pushes the company into a more dynamic political climate and allows it to work in theatres which it is less acquainted with. Saudi Aramco has its business model at a threshold whether the firm remains a pure Oil & Gas Corporation or a member of the group and its position in petrochemicals, refined products, and other non-core sector activities is expanded.

Business Objectives and Marketing Problem

Aramco has been reliant on the developing countries like China and India as they have been increasing in population with a positive growth trend in the economy. The living standards of the growing economies are increasing which are the key opportunity for Aramco which has been contributing by 12.5% of the world’s crude oil production. The ecosystem is particularly being affected by the emissions of fossil fuel, this is the leading cause of the environmental issue and global warming. Globally there are major shifts towards the use of renewable energy. The largest oil and gas producer has been particularly stable due to its unmatched low cost and upstream oil, the authentic size and volume of the oil reserves has been in discussion and particularly led to disagreements with many industry experts as they claim the oil reserves are lower than what is claimed by the company. The world now requires solutions for renewable energy which is what has led Saudi Aramco to harness the extraction of hydrocarbon that is being generated. The vertically integrated ventures from the downstream penetration of Saudi Aramco from its own or merger refineries with various marketing channels has given an insurance policy to Saudi Aramco to survive if there are unfavourable conditions in the oil industry. The priority of Saudi Aramco is the oil production from its refinery simultaneously its management of the petrochemical and refineries has kept afloat the demand of the oil. This demand coverts into security for the company, moreover, the trading policy has allowed to have strategic deals with China and Japan to supply crude oil which has proved to be effective for the company (Saudi Aramco 2018, Annual Review 2017).

In the above Table1, we can see that Aramco has been divided into three main business segments, strategic, upstream and downstream, these focus areas and goals have to lead the company into complete integration and led to sustainability and extensive diversity. The Government has been drawing on the company’s management skills for projects not part of its core business activities with Saudi Aramco being a vital agent for the Kingdom’s social and economic growth, and the lists of new ventures, sectors, and tasks it has taken on have developed rapidly. Despite the diversion from its principal segment, the business continues to grow its upstream ability to sustain this figure at the world’s largest barrel to be one of the top three petrochemical companies in the world, at about 15 million barrels a day, while expanding into petrochemical goods Saudi Aramco (2015).

The petrochemical industry refining opens up possibilities for natural development and domestic and foreign collaborations with prominent corporations to set up industries in the fields of local supply chains for Saudis logistics and resource supplies and to build new employment that are key priorities of the Vision 2030 program. Aramco now has major and noticeable stakes in industrial diversification, restructuring of domestic oil, national jobs and entrepreneurship, and intermediate, technical and higher learning. It has been a political player, but it is not run by politicians: most of its top-level senior managers are mainly professionals, naturally cautious and perhaps lacking the desire to participate in more contentious policy areas, or the experience of actively protecting the interests of the company. Saudi Aramco is on the route of becoming the leading integrated energy and chemical firm globally which would promote sustainable and diversified economic development for the Saudi Kingdom by achieving the strategic goal of optimized sales (Saudi Aramco 2018, Annual Review 2017).

There are several objectives to enhance Aramco’s downstream operations, namely to increase its global footprint and establish sustainable competitive advantages because of volatile oil prices. The goal is to spread the risk of the business and benefit of a crude oil investment policy to ensure optimal equilibrium between Asia, Europe, and North America, where Aramco already operates, as well as the introduction of new sub-regions and various policies for them. Hence, the company has founded Saudi Aramco Products Trading Company (ATC), which trades an annual volume of 3700 tons of chemical products and has been trading an average of at least 0.1 billion BPD of refined petroleum products for its marketing presence.

Simultaneously, internal Saudi dynamism and challenges have demanded the strengthening of the policy foundations, taking account of new strategic directions. These policies have endured the trial period, other policies are recent, particularly the emergence of shale oil production from numerous non-state players that pledge a change in the oil order. The economy of Saudi Arabia has been in an inflection following an increase in growth over the previous decade particularly in the year 2003 to the year 2013 which were driven by increasing oil prices. In 2016, it was at a time when low oil prices produced an existent incentive for the nation to implement a new dynamism and policy in the period 2014–2016 (Abir, 2019).

The lack of accountability, particularly in the relationship between the company and the government, also postponed investors. Saudi Arabia controls property and gas deposits. Aramco exists under the concession deal which allows Aramco as the exclusive company to develop on the kingdoms hydrocarbon resources. There was no interest from global buyers, to accept the valuation of Saudi Aramco of $2 trillion. Something that left the Wall Street bankers in a tough position to inform the chairman of the company that the assessment was not deliverable. The transactions of the IPO were supervised by only 3 banks, 2 of which are local Saudi banks. Saudi Aramco now markets just 1.5% of its company shares valuation, earning about 25.6 billion dollars, with a total valuation of 1.7 trillion dollars. The cycle has turned to domestic players, at home and in the Gulf area, when foreign investors did not participate (Gross, 2020).

The problem here arises to develop a communication strategy that reverses the impact of the somewhat failed IPO which did not reach its true potential. Aramco is in dire need of a communication strategy to reach the vision of 2030.

Research Objectives and Research Questions on Saudi Aramco

Research objectives are describing the basic actions you are taking to accomplish your research goal. Objectives describe what, when, how, where, and how. During your research project, you can update your priorities periodically and ensure that you remain focused and determine whether you need to revisit or amend it. In the past few decades, Investor Relations (IR) has been a significant subject for university and technical debates. While the definition of the profession is contested, with the emerging developments of both finance and communication, disciplines accept that communication is of the vital importance of IR progress. Authors like Laskin (2011) argue that IR is not used entirely to optimize equal appraisal and to achieve a profitable return on investments in companies because IR practitioners with ordinary solely financial history are not strategically expert on communication. The main objective of this research is to shed light on the communication strategy that Aramco has to adopt to gain the trust of foreign investors after a failed IPO. Trust is gained by enhancing the firm’s strategic image by adopting a strategic communication strategy where relationships are build and maintained by two-way communication.

Research Question: To identify the optimal communication strategy to enhance firms’ strategic image amongst investors.

The research will focus on finding the optimal mix for the communication strategy for Aramco.

Evaluation of Potential Data Sources

According to Silverman (2016), Research methodology is characterized as a comprehensive approach, from question detection to the final data collection and analysis plans. The application of a given approach may be affected by the natural or social status of the researcher and the theoretical nature of the research issue. Factors such as how the researcher wants to determine the attributes or to classify the number of variables in the data gathered to conclude achieving the objectives set are crucial (Henn, Weinstein, and Foard 2009). Whereas this study is focused on the evaluation of the qualitative data collection from the following approaches. Data collection, according to Weller and Romney (1988), is a comprehensive, systematic compilation of knowledge suitable for the analysis using various techniques. Chart analysis, semi-structured interviews, and content analysis were used in this research to clarify the engagement techniques that are used to establish and maintain relationships with their Aramco investor stakeholders. The methods used are described below.

Semi-structured interviews are a two-way conversation in which the interviewer probes the respondent’s questions to collect data and to learn about the phenomenon being researched (Yin, 2003). According to Creswell (2012), qualitative interviews have their origins in qualitative research philosophy and they take the form of a conversation in understanding the participant’s constructed nature of reality

Other information collection techniques were required to allow the researcher to further verify and appreciate the capabilities of the communication approach, the essence of interaction with investor stakeholders, and the communication approaches used in relationship management. Robson (2002) defines document analysis as a formal method used in daily life to analyse documentation. This methodology was chosen because records can be used without forcing on participants and reliability can be checked and rechecked (Gordon, 1989).

References

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