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Crown Prince’s oil war looms over first Saudi Aramco results since IPO


By Matthew Martin and Anthony DiPaola

When Saudi Aramco publishes its first earnings as a listed company, its world-beating profits will be overshadowed by its role in the collapse of the oil market.

Aramco executives briefing Wall Street analysts on Monday may face tough questions about how they’ve become tools in the kingdom’s price war with Russia. Even as crude endures a historic slump, Crown Prince Mohammed Bin Salman doubled down on his plan to pump flat out, ordering the company to spend tens of billion of dollars boosting production capacity.

Aramco has been “weaponized,” said Karen Young, a resident scholar covering the Middle East and energy policy at the American Enterprise Institute in Washington. “It is a gamble and Saudi Arabia, via Aramco, has gone all in.”

Aramco declined to comment when asked about its investment plans and relation to the state.

The world’s biggest crude exporter and the source of most Saudi government income is the key pillar of Prince Mohammed’s goal to make his kingdom a magnet for investment and build a new post-oil economy. It was the world’s most profitable company in 2018, with net income of $111 billion that exceeded the combined earnings of corporate giants including Apple Inc., Samsung Electronics Co. and Alphabet Inc.

Saudi Arabian Oil Co., as it’s formally known, is forecast to post adjusted net income of 347 billion riyals ($92 billion) for 2019, according to the average of analyst estimates compiled by Bloomberg. The country’s production slipped to an average of 9.83 million barrels a day last year due to output cuts, down from 10.65 million in 2018, while the price of Brent crude was about 10 per cent lower, according to data compiled by Bloomberg.

Price War

The Crown Prince’s push for control of global crude markets brings into stark relief how he’s using the world’s most profitable company as a policy lever, while minority shareholders are left to look on.

Brent lost around a quarter of its value in a week and the company’s shares plunged 12 per cent this week after Saudi Arabia, Russia and other members of the OPEC+ alliance failed to reach a deal to cut production and support oil prices on March 6.

After talks broke down, the Saudis and Russians kicked off an oil price war, both announcing plans to ramp up production and flood the market with crude. Aramco slashed crude pricing and doubled down on sales to Europe in an assault on markets in Russia’s backyard.

How a new lower-for-longer oil price scenario will affect the company will likely be the main focus for analysts when Aramco hosts its first earnings conference call since a world-beating initial public offering last year.

Oil prices have dropped so low that Aramco may not make enough to cover capital expenditure commitments and to pay a pledged $75 billion dividend, according to analysts at Credit Suisse. Unless crude recovers, free cash flow may fall short of requirements, the analysts including Thomas Adolff wrote in a note on March 12.

“One of the key things from the company now is how they manage the capex to lift production,” said Christyan Malek, head of JP Morgan Chase & Co.’s oil & gas research for Europe, the Middle East and Africa. “We could see them reallocate some of the investment away from downstream projects to focus on boosting production.”


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