Saudi Aramco announced its 2019 profit fell by 20.6% due to lower crude oil prices.
These are Aramco’s first annual results after its record initial public offering of $29.4 billion when listing in the Tadawul market.
The company’s net profits dropped to $88.2 billion in 2019, from $111.1 billion recorded in 2018. Aramco said its 2019 results were “strong”, in a scenario of lower prices.
The company attributed the results to a decline in crude prices and lower margins for its chemical sales. It also pointed to the September drone strike against one of its infrastructures that temporarily halved production.
An exceptional year
The oil company’s CEO Amin Nasser qualified 2019 as an exceptional year for Saudi Aramco: “We maintained our position as an upstream powerhouse.”
#Aramco reports strong 2019 results despite difficult macro environment.
— Aramco (@Aramco) March 15, 2020
The results were announced amid an intense price war between Riyadh and Moscow, after failing to reach an agreement on production cuts at an OPEC meeting this month.
Brent, a global benchmark, has decreased by 50% since late December, reaching $33 per barrel. Some analysts predict prices will continue to fall under $20.
“The recent outbreak of Covid-19 and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape. This is essential for Saudi Aramco’s strategy and we will make sure to maintain solid operations and finances,” Nasser stared.
The company announced it will pay dividends on a quarterly basis. The capital expenditure will stand between $25 billion and $30 billion, a significant drop when compared with the $32.8 billion in 2019.
Still, the company would need at least $100 billion to meet its dividends and capital expenditure commitments, nearly matching its 2019 payments.
A difficult scenario
Low oil prices threaten to damage Aramco’s profits and Saudi Arabia’s finances. The kingdom needs an oil barrel at $84 to balance this year’s budget.
Increasing debt is an option, since borrowing costs are low and the company is still within its debt-to-equity ratio of 5-15%.
The yield of Aramco’s $3 billion bond due in 2029 has increased this month, amid a global selloff of emerging market assets. However, at 3.65% it is barely higher than in April, when the debt was issued.
The government could also reduce its dividend allocations while paying private shareholders, which own about 1.5% of the company (nearly $75 billion).
Air strikes against two of Saudi Aramco’s main facilities in September 2019 forced the company to temporarily halve production.
The state-owned company, which restored production levels 11 days after the attacks, assured that it “continues to be one of the world’s largest crude and condensates producers, with an average production of 13.2 million barrels of oil equivalent per day.”
In this scenario, Aramco is the world’s largest company in terms of market value, and also the most profitable. Saudi Aramco’s revenue in 2019 was equal to that of Apple Inc., Samsung Electronics Co., and Exxon Mobil Corp, combined.
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