Page 4 - MEOG Week 01 2021

MEOG COMMENTARY MEOG

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

P4 www. NEWSBASE .com Week 01 06•January•2021