Saudi Aramco has said it will cut capital spending in response to the coronavirus outbreak. In the same statement it also reported a plunge in profit for last year, which meant it missed forecasts in its first earnings announcement as a listed company.

Last year, Saudi Arabia’s Crown Prince Mohammed bin Salman’s programme for economic and political reform involved floating shares in Saudi Aramco, (its state oil company and the most profitable company in the world at the time).

The aim of the record-setting IPO was to make the world’s biggest energy exporter more professional and transparent. But now it has reported a 21 per cent decline in net profit for last year, meaning it has fallen short of analysts’ forecasts for the period.

2019 culminated in the share sale, which came mere months ahead of the coronavirus pandemic becoming a significant factor for oil prices.

Aramco listed its shares in Riyadh in December in a record $29.4 billion initial public offering that valued it at $1.7 trillion. Its shares fell below the IPO price last week for the first time, as oil prices crashed after the collapse of an output deal between OPEC and non-OPEC members. Oil prices have fallen nearly 50 per cent from highs reached in January and had their biggest one-day decline on March 9 since the 1991 Gulf War.

Brent crude futures last traded at $33.85 per barrel on Friday, down from about $64 when Aramco listed its shares.

Elsewhere, in recent weeks, Riyadh has announced that it is ramping up production in an oil price war with Russia. This has sent global prices plunging and further contributed to the coronavirus rout on international financial markets.

Aramco CEO Amin Nasser said in the statement that the company has already taken steps to “rationalize” its planned 2020 capital spending. He said: “The recent COVID-19 outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape.”

But Saudi Arabia’s strategy to gain market share by flooding the markets with cheap oil has revived investor concerns that the profitability of the company would come second to government-led strategies to influence oil markets.

Hasnain Malik, Head of Equity Strategy at Tellimer, said: “Foreign investors may view recent events as confirmation that the strategic direction of Aramco is driven by its majority shareholder, driven by national development and geopolitics, not simply value maximization of this company’s returns.”

Despite a drop in income, Aramco said it paid a dividend of $73.2 billion in 2019 and intends to declare a cash dividend of $75 billion in 2020, paid quarterly. Aramco, which is 98 per cent owned by the Gulf kingdom, reported a net profit of $88.2 billion in 2019, down from $111.1 in 2018.

Analysts had expected Aramco to post a net profit of 346.6 billion riyals (75.48 billion pounds) in 2019, according to an estimate of 15 analysts polled by Refinitiv.

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17th March 2020