View attached explanation and answer. Let me know if you have any questions.Running Head: Saudi Aramco Annual Report AnalysisTOPICINSTITUTIONAL AFFILIATIONSTUDENTS’ NAMEPROFESSOR’S NAME1Saudi Aramco Annual Report 2020 Analysis2IntroductionSaudi AramcoSaudi Aramco stands as one of the largest companies in terms of revenue globally asper the reports released in 2020. The company is based in Dhahran and is remarkably knownfor its natural gas and petroleum supply. Aramco traced its history from an average of 85 yearsago when a set of curious explorers established to survey Saudi Arabia’s deserts. It wasformerly known as Arabian-American Oil Company. Our mission in Aramco is to “Strive toprovide shareholders with resilient value creation through crude oil price cycles by maintainingits preeminence in oil and gas production capturing additional value across the hydrocarbonvalue chain and profitably growing its portfolio.” Essentially, the company’s vision is “to bethe world’s preeminent integrated energy and chemicals company, company operating in safe,sustainable and reliable manner.” More so, upholding our core values of excellence, safety,citizenship, integrity, and accountability has contributed significantly to our agility during thepandemic.The Saudi Arabian government manages the company through the Ministry ofPetroleum and Mineral Resources in partnership with the Supreme Council for Petroleum andMinerals. Activities within Aramco include exploration, production, marketing, anddistribution of petroleum products. As of 2020, the company had a total of 66,800 employees.The operations in the company are run by a board of directors with Amin Al-Nasser as theCEO and President, while Yasir Al-Rumayyan serves as the chairman. Audits in 2020 reveal adecrease in revenue, operating income, and net income, which is linked to the outbreak of theglobal pandemic COVID-19. However, Aramco confirms exceptional resilience through thepandemic by advancing the business and maintaining strong governance during the pandemicto ensure it meets its vision.Management LevelA group conducts the audits following International Standards on Auditing. Based onthese compliances, the group evaluates Aramco’s operations, management, and financial status.Through professional judgment, the group provides an overall proposition of the overallworking of a company. Equally, the audits conducted include perception or message from asenior executive to determine their view towards the company.Saudi Aramco Annual Report 2020 Analysis3Intending to keep track of the company’s progress, the annual report of 2020 containsinformation on activities, operations, and most essentially, reports from the Board. Thechairman of the Board of directors affirms that the company has worked to fulfill its motive asit has managed to complete the most significant acquisition purchase of 70% of SABIC (SaudiArabia Basic Industries Corporation. Notably, Aramco recorded the first ordinary AGM afterits inauguration in IPO. Consequently, it also marks the first annual public report release.According to De Meuse and Harvey 2021, Yasir takes to the duty of expressing gratitude to allparties involved in supporting the company during the unprecedented global economicuncertainty caused by the pandemic, which helps builds agility. He confirms that experiencesin 2020 serve as the limelight of Aramco’s commitment to delivering both economic and oilprice cycles. Amin Nasser also confirms the utmost flexibility of supplying energy globally atthe speed of progressive discoveries in science and the pandemic. Maintaining financialresilience stands as the point of reference as noted by the CEO, suggesting that events duringthe pandemic have strengthened and built confidence in the company’s abilities. Despite theeconomic fallout due to the pandemic, Aramco managed to declare 218 billion SAR, whichequates to $75billion to their shareholders.AchievementsAramco accounts for numerous achievements in terms of production and supplies,financials, and management. The most outstanding achievement of the company in 2020 is thesuccessful pursuit of its biodiversity objectives. Based on the annual report, the companymanaged to increase its mangrove forest cover by 3 million hence standing at 5.3 million alongwith the Eastern province. This essentially contributes to its mission of maintaining safety.Significantly, Aramco has recorded expansion in production and processing capacities from8.9mmbpd to 12.0mmbpd, which equates to a 35% increase, recorded in March 2020. This islinked to the solid combination of the reservoir managing tactics and production resourcesemployed. By the end of 2020, the company has noted a significant increase in the natural gasprocessing capacity standing at 18.3bscfd from 17.4bscfd in 2019. Aramco managed tocompensate its revenues directly since the price equalization mechanism was enacted based onthe company’s will to comply with the government’s directives regarding the internal supplyof liquids, petroleum, and gases (LPG) (LPG). Aramco’s aim to meet the domestic demand ofgas supply recorded an outstanding achievement as the company made a historical achievementrecoding 10.7bscfd gas production within a single day. This production recorded on 6th August2020 stands as the highest natural gas production since its initiation.Saudi Aramco Annual Report 2020 Analysis4Worth noting, the company made seven discoveries in crude oil and gas fields andan additional reservoir. Through its advanced technologies in the drilling activities, thecompany made crude oil explorations in the Northwest and Summan regions. Natural gasdiscoveries in Ghawar areas have resonated with the company enjoying high supply rates tomeet the growing demand rates at low costs. Apart from production achievements, the companymanaged to hire a new board member Mark Weinberger to strengthen the governance levels.ChallengesDespite the endless list of achievements, the company recorded vast challenges.The outbreak of COVID-19 disrupted the global economy such that energy demand wasseverely affected. Low prices, as well as volumes, supplied stand as the major challenge of thecompany, which caused significant financial constraints. Audits by PWC (PriceWater HouseCoopers) reveal that the Net income of crude oil at the end of 2020 was at $49,003 incomparison to $188,185 in the previous year. The operating cost decreased by 14.8% from$149,843 in 2019 to $127,662 in 2020. Equally, the company suffered a decrease in the royaltyrates, linked to the low supplies made from 20% to 15%. The financial position of Aramcorecorded huge losses, especially comparisons made regarding the assets and liabilities of thecompany. With increased borrowing rates and a rise in retirement benefit commitments, thecompany suffered an increase in liabilities. In 2019, the liabilities stood at $119,438, while in2020, it had heightened to 216,845.Cybersecurity attacks on the company’s IT systems were also prevailingchallenges in 2020. The company’s systems remain vulnerable to attacks from competitors andcriminal hackers, which cause physical damage and access to confidential information of thecompany to unauthorized persons. In the woke of COVID-19, operations and remote workarrangements are entirely dependent on online access. This hence increases the potential andpossibility of data breach incidences. The company has in previous years suffered such attacks,which has rendered the company heightened fear in 2020.Aramco has suffered the vulnerability of losing senior management staff due tocompetition and the ability to hire, develop and retain qualified staff from other companies.The company has experienced departure and termination of employment of senior staff, whichis the loss in terms of skills and prowess. In 2020, the company lost a senior director AndrewGould who stepped down. Aramco is subjected to regulatory risk and litigations that preventits adverse development in terms of financial position and development. Changes in oil and gasSaudi Aramco Annual Report 2020 Analysis5industry policies consequently have impacts on the financial position of the company.Corruption, bribery, and trade restrictions are also challenges encountered by Aramco in certaincountries of investment. (Rahman 2020)Management Strategy to Counter the challengesIntending to maintain its objectives during the pandemic, Aramco emphasizesrebalancing its cash primacies to sustain agility and its financial position. PWC notes thatprocedures and programs to reduce operating and capital expenses were implemented. Moreso, …
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