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| Aramco was listed on the Saudi stock market in December following the world's largest initial public offering but has since been hit by a slump in world oil prices as the coronavirus pandemic has sent the world into recession (AFP Photo/ Fayez Nureldine) |
Riyadh (AFP) - Energy giant Saudi Aramco on Tuesday posted a 25 percent slump in first-quarter profit and said the coronavirus crisis which triggered a crash in oil prices would weigh heavily on demand in the year ahead.
Aramco was
listed on the Saudi stock market in December following a historic $29.4 billion
initial public offering -- the world's largest -- but since then has faced a
torrid environment.
Oil prices
slumped to nearly two-decade lows in March, losing almost two-thirds of their
value as the coronavirus pandemic sent the world into recession.
Prices
plummeted further in April amid a price war between Russia and Saudi Arabia as
the major producers scrambled to secure market share.
"The
COVID-19 crisis is unlike anything the world has experienced in recent history
and we are adapting to a highly complex and rapidly changing business
environment," CEO Amin Nasser said in a statement.
Aramco said
that a steep decline in global demand for energy and prices caused by the
pandemic would undermine its full-year results.
"Longer
term we remain confident that demand for energy will rebound as global
economies recover," Nasser said.
The world's
largest listed firm posted a net profit of 62.5 billion riyals ($16.66 billion)
in the three months to March, compared to $22.2 billion a year earlier.
The company
said the drop in earnings mostly reflected a decline in crude oil prices, as
well as shrinking margins in the refining and chemicals businesses.
Price war
truce
During the
price war in April, Saudi oil production soared to a record 12.3 million
barrels per day, pushing stockpiles to unsustainably high levels and causing
chaos on global oil markets.
However,
top producers agreed last month to slash output by 9.7 million bpd to try to
arrest the freefall.
During the
crisis, prices for benchmark West Texas Intermediate dipped below zero for the
first time ever as abundant supplies wiped out storage capacity in the United
States.
The
coronavirus lockdowns, which have kept billions of people in their homes in
order to contain the pandemic, have sapped global demand by more than 20
million bpd.
On Monday,
Riyadh announced it would cut output by more than it had pledged -- shaving an
additional 1.0 million bpd -- providing markets with a much-needed boost as the
world economy cautiously emerges from the shutdown.
The move
means that in June, Aramco production will drop to 7.5 million bpd -- its
lowest level since mid-2002, according to analysts.
Aramco said
Tuesday that its first quarter revenues were calculated on the basis of an
average production of 9.8 million barrels per day and an average oil price of
$51.8 a barrel.
However,
factoring in the cuts in May and June, profits in the coming quarters are
likely to plummet, meaning that Saudi state revenues, which heavily rely on
Aramco results, will take a substantial hit.
The
kingdom, which has posted a budget deficit since 2014, resorted to austerity
measures on Monday, tripling value-added tax to 15 percent, delaying or
cancelling projects and abolishing citizens' cost-of-living allowance.
The cuts
risk stoking public resentment over an already high cost of living and demands
for greater scrutiny of major projects such as the proposed purchase of English
Premer League football club Newcastle United.
Industry
reeling
Almost all
global energy giants, including Exxon Mobil, Chevron and BP, have reported huge
losses in the first quarter.
Aramco,
which is responsible for the stewardship of Saudi's huge energy reserves, has
relied on its extremely low production costs to remain profitable.
The company
said however that capital spending will be trimmed this year, in a range
between $25 billion and $30 billion, down from $32.8 billion in 2019.
Investors
brushed off the drop in profits as Aramco's share price closed the day up 1.3
percent at 31.30 riyals.
Since the
start of the year, Aramco shares have lost 11.2 percent and its current market
value stands at $1.67 trillion, way down from levels of just over $2 trillion
that it hit soon after listing.
Aramco,
which is headquartered in the eastern city of Dhahran, last year posted a 20.6
percent decline in its annual net profit to $88.2 billion due to chronically
low oil prices and production levels.
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