Energy giant Saudi Aramco on Tuesday posted a 25% 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.
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%, 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.
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% at 31.30 riyals.
Since the start of the year, Aramco shares have lost 11.2% 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% decline in its annual net profit to $88.2 billion due to chronically low oil prices and production levels.