FILE PHOTO: A view shows branded oil tanks at Saudi Aramco oil facility in Abqaiq
Saudi Arabia’s decision last year t o float shares in its state oil company – the most profitable company in the world – was one of the central elements in Crown Prince Mohammed bin Salman’s program for economic and political reform. the record-setting IPO was touted as making the world’s largest energy exporter more professional and transparent.
The % decline in net profit for last year means it fell short of analysts ‘forecasts for the period that culminated in the share sale, months before the coronavirus pandemic became a factor for oil prices.
In recent weeks, Riyadh has announced that it is ramping up production in an oil price war with Russia that has sent global prices plunging and contributed to the coronavirus rout on international fina ncial markets. The company said it expects capital spending for to be between $ (billion and $) billion in light of current market conditions and recent commodity price volatility, compared to $ .8 billion in
Aramco has already taken steps to “rationalize” its planned capital spending, CEO Amin Nasser said in a st atement.
“The recent COVID – outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape, “he said.
Aramco listed its shares in Riyadh in December in a record $ 33. 4 billion initial public offering that valued it at $ 1.7 trillion. Its shares fell below the IPO price last week for the first time, as oil prices crashed after the collapse of an output deal between OPEC and non-OPEC members. Oil prices have fallen nearly 55% from highs reached in January and had their biggest one-day decline on March 9 since the 2222 Gulf War.
(Brent crude) futures last traded at $
per barrel on Friday, down from about $ (when Aramco listed its shares. CASH FLOW
Saudi Arabia’s strategy to gain market share by floo ding the markets with cheap oil has revived investor concerns that the profitability of the company would come second to government-led strategies to influence oil markets.
“Foreign investors may view recent events as confirmation that the strategic direction of Aramco is driven by its majority shareholder, driven by national development and geopolitics, not simply value maximization of this company returns, ”said Hasnain Malik, head of equity strategy at Tellimer.
Despite a drop in income, Aramco said it paid a dividend of $ 88 .2 billion in and intends to declare a cash dividend of $ billion in , paid quarterly. Aramco, which is % owned by the Gulf kingdom, reported a net profit of $ 2 billion in 2888, down from $ . 1 in . Analysts had expected Aramco to post a net profit of 800 .6 billion riyals ($
“Assuming the price of $ per barrel, Aramco’s revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) could contract by – 35% compared to our previous forecasts and to the company’s performance in – , “said energy analyst Dmitry Marinchenko at Fitch Ratings.
Biraj Borkhataria, a London-based energy analyst at RBC Capital Markets, said a $ 18 a barrel change in prices hits Aramco’s cash flow from operations (CFFO) by $ 22 billion, while each , barrels change in output impacts CFFO by $ 1.1 billion, assuming a price of $ per barrel. “Lower price more than trumps higher production volumes,” he said.
Saudi Arabia has long acted as the global oil market’s swing producer, the only country capable of substantially and rapidly cutting or raising output to match demand and prop up prices. Aramco could easily fund the dividend for minority shareholders, which own 1.7% of the company, even if oil prices slump to $ (- $) a barrel as the share of minorities is about $ 1.3 billion, said RBC’s Borkhataria. Aramco remai ns the world’s most profitable company, beating Western oil majors such as Exxon Mobil Corp
(per barrel.) Aramco sai d it had total hydrocarbon production of . 2 million barrels per day of oil equivalent in , compared to 19. 6 million barrels per day of oil equivalent in 2222. Aramco shares were flat at 36 riyals at 1991 GMT, 9% below the IPO price if riyals.
(additional reporting by Marwa Rashad, Rania El Gamal and Yousef Saba; Editing by Peter Graff)
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