Saudi Aramco to cut capex after 2020 profit drops 44.4%

FILE - In this Dec. 11, 2019, file photo, Saudi Arabia's state-owned oil company Armco and stock market officials celebrate during the official ceremony marking the debut of Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia. Saudi Arabia's oil company Aramco said Wednesday, march 11, 2020, it will increase production capacity to 13 million barrels per day, up from 12 million per day, part of a strategy to dominate market share amid a slowdown in demand due to the outbreak of a new virus.

Saudi Arabian state oil giant Aramco said on Sunday it expects to cut capital expenditure after it reported a 44.4% slump in 2020 net profit, hit by lower crude oil prices and sales as the coronavirus pandemic depressed demand.

The company lowered its guidance for spending to around $35 billion from a range of $40 billion to $45 billion previously, according to a disclosure to the Tadawul bourse.

Aramco declared a dividend of $75 billion for 2020 and signalled it was seeing pickup in oil demand.

“The dividend is in line with expectations, which is what holders of Aramco will care about most, but lower capex implies the company does not expect high oil prices to last for the long-term,” said Hasnain Malik, head of equity research at Tellimer.

Net profit fell to 183.76 billion riyals ($49.00 billion) for the year that ended Dec. 31, from 330.69 billion riyals a year earlier.

Analysts had expected a net profit of 186.1 billion riyals in 2020, according to the mean estimate of analysts in Refinitiv’s Eikon.

“Looking ahead, our long-term strategy to optimize our oil and gas portfolio is on track and, as the macro environment improves, we are seeing a pick-up in demand in Asia and also positive signs elsewhere,” Saudi Aramco Chief Executive Amin Nasser said in the statement.

Aramco’s 44.4% drop in 2020 profit compares with a 30.7% decline in oil revenues last year for the Saudi government, with steady dividends to the government despite the lower oil prices contributing to Aramco bearing the brunt of the crisis more than the treasury, said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Earnings in the top western oil and gas companies including Royal Dutch Shell and BP dropped to multi-year lows in 2020. Exxon Mobil, the largest U.S. energy company, posted its first annual loss.

Brent crude last traded at $64.53 a barrel on Friday, up from $51.80 on Dec. 31, 2020. Oil prices lost just over a fifth of their value in 2020.

Aramco said free cash flow amounted to $49 billion last year, down from $78.3 billion in 2019.

The company has a $5 billion payment towards the acquisition of a stake in Saudi Basic Industries Corp coming up this April, according to an HSBC report in February.

It has only paid $7 billion out of the combined $75 billion transaction cost, including interest, for the SABIC deal.

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