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Saudi oil giant cuts capex target by as much as 24% vs 2019
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Profit slumped 21% in 2019 on lower oil prices and production
Saudi Aramco is slashing planned spending this year in the first sign
that plunging demand and the oil-price war the kingdom unleashed are
hitting home.
Capital expenditure will be between $25 billion and $30 billion
in 2020 and spending plans for next year and beyond are being reviewed,
Aramco said. The oil giant is lowering that range from the planned $35 billion to $40 billion announced in its IPO prospectus, and compares with $32.8 billion in 2019.
“That was the surprise,” Ahmed Hazem Maher, an analyst at EFG
Hermes in Cairo, said of the spending cut. “They’re adding production
in a low price environment so their cash flows could be impacted.”
Cutting investment could help absorb some of the impact of the drop in
oil prices, he said.
The oil-price war led by Saudi Arabia and Russia means more
pain for Aramco as producing nations prepare to boost supply. Discounted
pricing to markets already reeling from weak demand and crude that lost
roughly half its value since the beginning of the year is likely to hit
revenue further.
Aramco
shares fell as much as 1% on Sunday, extending the decline this year to
about 19%. Aramco’s market value has slumped from a peak of over $2 trillion in December to about $1.5 trillion. Aramco executives are set to brief financial analysts of the results at 3 p.m. Saudi time on Monday.
The
coronavirus’ blow to oil use has overwhelmed OPEC’s initial optimism
for demand this year, with analysts now expecting a drop in consumption.
The OPEC+ group’s failure on March 6 to agree on further cuts is only
exacerbating a glut as buyers search for storage tanks and vessels.
“We have already taken steps to rationalize our planned 2020
capital spending,” Chief Executive Officer Amin Nasser said. Given the
impact of the coronavirus pandemic on economic growth and demand, Aramco
is adopting “a flexible approach to capital allocation,” he said.
Saudi
Arabia, Russia and others intend to boost production once the current
accord to lower output expires in March. The kingdom pledged to supply
25% more oil in April than it produced last month, and Wednesday ordered
Aramco to boost output capacity by 1 million barrels a day.
Key 2019 numbers |
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Oil
prices fell last year even as Saudi Arabia trimmed output as part of
efforts between OPEC and other producers to rein in production. Drone
and missile attacks on two of its biggest facilities in September
temporarily slashed production by more than half, but didn’t cause a big
surge in prices.
Aramco reiterated its plan to pay $75 billion
in dividends this year. The company needs to balance its pledge to pay
investors with spending on its upstream projects -- maintaining oil
production and expanding fields -- and boosting its global refining and
chemical operations -- the downstream segment of the business.
“Aramco
can restructure the strategy to concentrate more on the upstream
expansion rather than downstream,” said Mazen Al-Sudairi, head of
research at Al Rajhi Capital. “They can do it easily from their cash
flow. But it might affect the money transfer to the government for one
or two quarters.”
Brent crude averaged $64.12 a barrel in 2019 compared with $71.67
the previous year. Saudi production slipped to an average of 9.83
million barrels a day from 10.65 million in 2018, according to data
compiled by Bloomberg. Aramco restored output to pre-attack levels by
early October.
Aramco’s 2018 net of $111 billion
made it by far the world’s most profitable company, exceeding the
combined incomes of some of the world’s biggest companies including
Apple Inc., Samsung Electronics Co. and Alphabet Inc.
— With assistance by Verity Ratcliffe
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