Saudi Arabia, which claimed to increase oil production to an all-time high, actually reduces facility investments

[Asia Economy Reporter Naju-seok] Saudi Arabia's state-owned oil company Aramco has drastically cut its capital expenditure budget for this year. This signals an intention to tighten belts in anticipation of prolonged low oil prices. While Saudi Arabia aims to increase daily production by 1 million barrels, the scale of investment in oil production facilities is actually being reduced, drawing attention to the possibility of realizing increased output.

On the 15th (local time), Aramco announced that it would significantly cut its capital expenditure this year due to falling oil prices. Aramco spent $32.8 billion (39.95 trillion KRW) on capital expenditure last year but plans to reduce it to between $25 billion and $30 billion this year. Aramco stated, "The scale of capital expenditure since 2021 is under review."

Initially, Saudi Arabia intended to reduce daily oil production by 1.5 million barrels through OPEC+ (a consultative group between OPEC member countries and non-OPEC oil-producing countries) due to the global economic impact of the COVID-19 pandemic. However, Russia opposed, suggesting to wait and see the situation, resulting in a failure to reach a production cut agreement among oil-producing countries. Subsequently, Saudi Arabia abruptly announced an increase in production, triggering a global "oil price war."

After the collapse of the OPEC+ agreement, Saudi Arabia announced plans to raise its maximum daily oil production capacity from 12 million barrels to 13 million barrels. In particular, it declared it would expand facilities to increase production capacity itself. According to The Wall Street Journal (WSJ), Saudi Arabia estimated that a budget of $30 billion would be needed to increase production capacity.

However, as Saudi Arabia cuts capital expenditure, doubts are growing about its willingness to increase production. A foreign media outlet introduced that it is unclear how Saudi Arabia plans to expand maximum production capacity and whether it will invest separate funds to increase production facilities.

[Image source=Yonhap News]

Saudi Arabia plans to compensate for reduced revenue due to lower oil prices by selling more. Regarding this, WSJ analyzed that it will be a significant challenge for Saudi Arabia to steadily increase production. In September last year, Saudi Arabia experienced disruptions in oil production due to drone attacks by Yemeni rebels.

Although Aramco has cut capital expenditure, it decided to increase dividend payments. Last year, Aramco paid $73.2 billion in dividends, and this year it raised the amount to $75 billion. Aramco is a publicly listed company following an IPO, but the Saudi government holds 98% of its shares. This means most of the dividends go to the Saudi government.

Aramco also disclosed that its net profit last year fell by 21% compared to the previous year. In 2018, Aramco recorded a net profit of $111 billion, but last year it shrank to $88.1 billion. Aramco cited the main reasons for the poor performance as lower oil prices caused by increased production by the U.S. and others despite OPEC+ production cuts, worsening refining margins, and reduced oil output.

This earnings disclosure is Aramco's first since its IPO in December last year. Aramco's stock price is currently trading at 28.7 riyals (about 9,270 KRW), down 1.03% from the previous trading day due to expectations of poor performance caused by low oil prices. This is significantly below the IPO price of 32 riyals. Market capitalization also fell from 2,000 trillion KRW at the time of the IPO to 1,777 trillion KRW.

Nasser Amin, Aramco's CEO, stated, "The recent outbreak and rapid spread of COVID-19 demonstrate the importance of quick adaptation in a constantly changing global market," adding, "We will ensure that operational capabilities and financial soundness are not affected."

This content was produced with the assistance of AI translation services.