Saudi Aramco, Saudi Arabia’s energy giant, reported a 20 percent drop in net profit for 2019, with 330.69 billion Saudi riyals ($88.18 billion) in net profit for the year, down from 420.39 billion riyals ($112.1 billion) for 2018, according to a statement posted on the Saudi Stock Exchange (Tadawul).
The company also announced dividends of 14.76 billion riyals ($3.94 billion) for the period from its initial public offering (IPO) on December 5, 2019, until the end of the year. The total dividends declared for the quarter were 50.21 billion riyals ($13.39 billion).
The net profit decrease was primarily due to lower crude oil prices and production volumes, coupled with declining refining and chemical margins, and a SAR 6.00 billion ($1.60 billion) impairment associated with Sadara Chemical Company.
“The recent COVID-19 outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape. This is central to Saudi Aramco’s strategy and we will ensure that we maintain the strength of our operations and our finances. In fact, we have already taken steps to rationalize our planned 2020 capital spending,” Aramco CEO Amin Nasser said in a statement.
For 2020 the company expects its capital spending to be between $25 billion and $30 billion due to current commodity price volatility, in comparison to $32.8 billion in capital expenditure for 2019.
“The company had announced about cutting costs this year … we are facing a global recession right now, but it is not related to the oil price directly. Aramco as the cheapest producer is not as sensitive to oil price as other producers,” said Mazen Alsudairi, head of Al Rajhi Capital research.
Aramco will be significantly effected by the recent developments in oil markets. Talks between the Organization of Petroleum Exporting Countries (OPEC) and Russia fell apart on March 6 when Russia refused to agree to a further 1.5 million barrel per day oil production cut. Crude oil futures plummeted March 9 in the biggest one-day price drop since 1991. Saudi Arabia and the UAE have both announced plans to increase oil production beyond current capacity, fanning fears of a price war in the oil market.
The price war will hit the company’s profits, as it fights for market share instead of price. Its low extraction costs averaging around $3 per barrel, however, will give it and the Kingdom an advantage over Russia and other oil producers in a price war, according to research from MUFG Bank.