Page 4 - MEOG Week 32.indd

MEOG COMMENTARY MEOG

Aramco income plummets

along with oil price

The Saudi NOC has posted a massive drop in income, but still
managed to turn a profit, unlike most others in the industry

SAUDI ARABIA STATE-OWNED Saudi Aramco published its first half was 12.7mn barrels of oil equivalent per
first-half results this weekend, illustrating in day, down 500,000 boepd compared to the full
part the financial pain Saudi Arabia brought year average for 2019.
WHAT: upon itself by going to war with Russia over the Meanwhile, CEO Amin Nasser hailed the
Aramco saw net profit fall oil price earlier in the year. company’s pre-eminence in the production of
by 50% during the first Aramco’s net income for the six-month both oil and gas, and Aramco has indeed made
half, year on year. period was halved to $23.2bn from the $46.9bn progress in the latter regard through the Fadhili
achieved during the first half of 2019. The gas plant reaching full production capacity of
WHY: impact was displayed most clearly in the dispar- 2.5bn cubic feet (70.8mn cubic metres) per day
Following Riyadh’s ity between Q1 and Q2 net income, which were following the successful completion of commis-
direction, the company $16.6bn and $6.57bn respectively. Meanwhile, sioning activities.
ramped up oil output as the company’s free cash flow (FCF) fell nearly
part of a poorly timed oil $17bn year on year to $21.1bn during 1H 2020. Spending
price war with Russia, Despite the challenges, Aramco did follow While Aramco reeled in its spending plans
while demand plummeted through with its $75bn full-year dividend com- for the full year, first-half capital expenditure
amid the COVID-19 mitment, paying its $18.75bn Q1 dividend dur- amounted to $13.6bn. MEOG understands
outbreak. ing Q2 and saying it would pay the Q2 dividend that the full-year capital programme has been
during the third quarter. However, with 98.5% of reduced by $10-15bn in reaction to the crisis.
WHAT NEXT: the company remaining under state control, only Indeed, Nasser told analysts during an August
Cash is an inconvenient $281.25mn is due to leave Saudi coffers. 10 earnings call that 2020 CAPEX would likely
concern for Aramco, The results mark the latest in a string of be at the lower end of a $25-30bn range.
but having promised high-profile challenges the company has faced Despite the reduction, the company closed
an unwieldly $75bn over the past 12 months. In September last year, the acquisition of 70% stake in petrochemicals
dividend, it has had to attacks at company facilities in Abqaiq and firm SABIC from the Public Investment Fund
look to the markets to fill Khurais saw oil flows reduced by 5.7mn barrels (PIF) for $69.1bn. The financing of the deal was,
the gap. per day. Then in December, Aramco listed shares however, renegotiated, allowing the balance to
on the local Tadawul stock exchange in a dras- be spread over the next three years.
tically pared-back initial public offering (IPO). While the scrutiny on spending can be attrib-
This however, saw the firm become the world’s uted to the company now being publicly listed,
most valuable listed entity, a title it held until or on the COVID-19 pandemic, Aramco is likely
just a week before the Q2 results were published, to be under greater pressure to ensure it does not
when tech giant Apple took top spot. come up short on its highly publicised dividend
payments. With that in mind, the company
Self-harm closed a $10bn one-year loan deal earlier this
In its results, Aramco heralded hitting a single year with a group of 10 banks and is reported to
day crude oil production target of 12.1mn bpd be in negotiations over a $10bn lease and rent-
on April 2 when the company’s output increased back agreement with domestic banks regarding
above maximum sustainable capacity (MSC) its oil pipelines, an arrangement akin to those
from several fields and crude flowed from stor- announced for first oil, then gas by Abu Dhabi
age facilities. However, it failed to mention the National Oil Co. (ADNOC).
capitulation in output that followed when oil It is little surprise, then, that aside from
prices went into freefall as coronavirus (COVID- SABIC, little was mentioned of downstream,
19) ravaged demand while supplies continued other than that “it continues to deliver on its
unabated. long-term strategy of strategic integration and
Middle East Oil & Gas (MEOG) understands diversification”. This marks a major change
that production fell to 7.5-8mn bpd during the from 2019, when the company was in expansion
second quarter as the company sought to stem mode, first announcing the SABIC deal and buy-
the bleeding and comply with OPEC+ cuts. ing stakes in Hyundai Oilbank in South Korea
Total hydrocarbon production during the and Motiva Chemicals in the US.

P4 www. NEWSBASE .com Week 32 12•August•2020