Page 9 - DMEA Week 01 2021

DMEA COMMENTARY DMEA

Aramco’s apt ending to 2020

The year was one like no other for the oil sector, and Saudi Aramco’s finances

were hit by the troughs more than most

SAUDI ARABIA STATE-OWNED Saudi Aramco made head- With this in mind and considering the
lines throughout 2020 as it both caused and importance of the promise of a ringfenced
WHAT: responded to oil supply and demand crises while $75bn per year dividend to those who invested
Aramco ended the year attempting not to undo the achievements of the in the IPO, Riyadh has now taken the step of
as it started: making company’s late 2019 initial public offering (IPO). stopping disclosure of projected oil revenues
headlines with moves that It remained true to form in the closing weeks of so as to avoid indicating potential changes to
illustrate the company’s the year with the announcement of new discov- the dividend.
struggles amid market eries, reports of downstream expansion and the In December, Finance Minister Moham-
upheaval. cancellation of a major gas tender amid specula- med Al-Jadaan told a press conference about
tion it will have to sell assets to fulfil its dividend the Kingdom’s 2021 budget announcement:
WHY: obligation to the state. “The reason we don’t disclose the oil and non-
The company began 2020 During the first half of the year, Aramco’s net oil breakdown is because of the presence of
on a high following its income was halved to $23.2bn from the $46.9bn Aramco as a listed company.” He added: “The
record-breaking initial achieved during the first half of 2019. The government deals with Aramco as a supplier for
public offering, but the impact was displayed most clearly in the dispar- tax. We have revenue that comes from Aramco,
COVID-19 pandemic saw ity between Q1 and Q2 net income, which were tax that comes from Aramco and also dividends
purse strings tightened $16.6bn and $6.57bn respectively. Meanwhile, since the government is the largest shareholder.”
quickly after a brief the company’s free cash flow (FCF) fell nearly Earlier in the year, Aramco responded to the
production battle with $17bn year on year to $21.1bn during 1H2020. oil supply glut and the impact of the coronavirus
Russia. More stark is the nine-month comparison – the (COVID-19) on demand by reeling in its full-
$33.5bn of FCF achieved in 2020 was more than year capital programme by $10-15bn. Despite
WHAT NEXT: $20bn lower than a year earlier. this, the company closed the acquisition of 70%
Major questions will Net income improved significantly between stake in petrochemicals firm SABIC from the
be asked of Aramco in Q2 and Q3 (from $6.57bn to $11.8bn), but this Public Investment Fund (PIF) for $69.1bn. The
2021 as it faces a battle still represented a y/y reduction of nearly $10bn, financing of the deal was, however, renegotiated,
to fulfil its dividend while pre-tax income fell by 44%. allowing the balance to be spread over the next
obligation, while longer- Despite the challenges, Aramco was able to three years.
term demand concerns follow through with its $75bn full-year dividend
will mean it continues commitment and paid its $18.75bn instalments Discoveries
reassessing its upstream for Q1-3, with Q4 due in early 2021. With 98.5% On December 27, the Saudi Ministry of Energy
production plans. of the company remaining under state control, announced that Aramco had discovered four
only $281.25mn is due to leave Saudi coffers, but new oil and gas fields.
concern is growing about the company’s ability Oilfields were discovered at Al-Ajramiyah
to maintain payments to the government, and and Al-Reesh, which are located north-west of
the Dhahran-based firm is understood to have Rafhaa and Dhahran respectively. The Al-Reesh
engaged Moelis & Co. to devise a strategy around 2, 3 and 4 wells discovered oil and gas, produc-
the potential sale of assets and/or subsidiaries to ing an initial 4,432 barrels per day, 2,745 bpd and
fill the shortfall. Middle East Oil & Gas Monitor 3,654 bpd of Arabian Extra Light crude respec-
(MEOG) understands from Aramco sources that tively. Meanwhile, the wells were also reported
the company is considering a strategy similar to to be flowing at 3.2mn cubic feet (91,000 cubic
that of Abu Dhabi National Oil Co. (ADNOC), metres), 1.6 mmcf (45,000 cm) and 3 mmcf
which has brought in more than $20bn through (85,000 cm) per day of gas.
the partial divestment of stakes in midstream Aramco was also said to have been produc-
and downstream subsidiaries. One source said: ing at a rate of 3,850 bpd of Extra Light from the
“Despite previous concerns from the Ministry Al-Ajramiyah well, with gas flowing at 18 mmcf
of Energy, the $10bnn Aramco oil pipeline deal per day of gas and 98 bpd of condensate.
is still very much on the table.” Meanwhile, Ara- The Ministry reported the discovery of
mco’s 50% stake in the Pengerang Refining and unconventional gas at the Al-Sarrah reservoir
Petrochemical (PRefChem) joint venture with at the Al-Minahhaz well, south-west of Ghawar,
Malaysia’s Petronas has been discussed as another and at Al-Sahbaa, and Aramco is continuing
possible divestment following two high-profile work on determining the area and size of the
explosions and major delays in the completion of discoveries as well as the volumes of hydrocar-
the eponymous downstream facility. bon reserves.

Week 01 07•January•2021 www. NEWSBASE .com P9