Sunday 15 March 2020 12:17 pm

Saudi Aramco cuts spending as profit drops 21 per cent following record float

Saudi Aramco today said it will cut capital spending this year as the oil giant braces for a slump in oil prices caused by the coronavirus outbreak and a price war with Russia.

The state-run company broke the record for the largest ever initial public offering (IPO) in December after it raised $25.6bn (£21bn), securing a valuation of $1.7 trillion.

But Saudi Aramco, whose shares last week dropped below its IPO price of 32 riyals for the first time, has outlined plans to cut expenditure in the coming years.

Aramco said it expected capital spending of between $25bn and $30bn in 2020, down from $32.8bn last year. It said expenditure for 2021 and beyond is under review.

It comes after oil prices last week crashed following the collapse of a deal between Opec and non-Opec members to reduce production, which prompted Saudi Arabia to launch a price war with Russia.

Benchmark indexes Brent crude and West Texas Intermediate both dropped more than 20 per cent last week — their biggest fall since the 2008 financial crisis.

Saudi Aramco, which supplies roughly 10 per cent of the world’s oil, reported net profit of $88.1bn last year, down 21 per cent from $111.1bn in 2018 and below analysts’ expectations.

Total revenue was 1.106 trillion riyals (£240bn) in 2019, down from 1.194 trillion riyals the year before.

Aramco said the fall in profit was mainly due to lower crude oil prices and production volumes, coupled with declining refining and chemical margins and a $1.6bn impairment relating to Sadara Chemical Company.

The company produced 13.2m barrels of oil equivalent per day (boed) last year, compared to 13.6bn boed in 2018. In September Aramco suffered a drone attack that initially halved production, though output levels were restored in 11 days, it said.

Despite the disappointing results, Aramco said it would pay out $75bn in dividends in 2020, up from $73.2bn in 2019 and in line with its IPO planning.

“The recent Covid-19 outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape,” said Amin Nasser, president and chief executive of Saudi Aramco.

“This is central to Saudi Aramco’s strategy and we will ensure that we maintain the strength of our operations and our finances.”