Aramco’s promise to pay its dividends may backfire
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Saudi Aramco’s senior management reshuffle is more than just a game of high-level musical chairs at any old energy company.
The oil giant faces an uphill battle to meet promises made before its record-setting initial public offering (IPO) last year — and before the coronavirus pandemic hit — to deliver a $75bn dividend payment this year and, presumably, a similar sized payout in 2021. It needs to adapt to meet the challenge.
Aramco is creating a new corporate development organisation that will focus on “portfolio optimisation”, with a brief to “assess existing assets” and boost access to “growth markets and technologies”. It will be led by senior vice-president Abdulaziz Al Gudaimi, who now heads up the company’s unprofitable downstream business.
The change, it said, “constitutes a refinement” of Aramco’s existing structure, not a fundamental organisational change. But it does suggest that the company is adapting itself to look more like its private-sector rivals such as ExxonMobil or Royal Dutch Shell.
Aramco has never had to worry much about its portfolio of assets before. It developed oilfields at home in Saudi Arabia, building and operating the infrastructure to process, transport, export and refine its output. And, increasingly, it invested in joint ventures with overseas processors to refine its crude and lock in guaranteed markets.
With huge profits to be made in the upstream sector of the business — finding, producing and selling crude oil — crude prices and production volumes have been the driver of corporate profit across the industry. But, as I have noted previously, that’s a model that has been turned on its head in 2020.
Western oil companies have weathered the Covid-19 storm by slashing dividend payments, and in the case of the European majors, the successes of their trading departments — both things Aramco couldn’t tap.
Aramco has been hit twice by the pandemic and taken heavier blows than its competitors. First, the collapse in global demand triggered a rout in oil prices, taking Brent from almost $70 a barrel at the start of the year to below $20 in mid-April. Prices are now back at about $45 a barrel, but have been stuck there, as the recovery in demand has faltered.
The second punch came from the Saudi-led oil cartel and allied producers Opec+ response that saw the 23-nation group cut production by a record 9.7-million barrels per day (bpd) in May. That slashed the volume ...
The oil giant faces an uphill battle to meet promises made before its record-setting initial public offering (IPO) last year — and before the coronavirus pandemic hit — to deliver a $75bn dividend payment this year and, presumably, a similar sized payout in 2021. It needs to adapt to meet the challenge.
Aramco is creating a new corporate development organisation that will focus on “portfolio optimisation”, with a brief to “assess existing assets” and boost access to “growth markets and technologies”. It will be led by senior vice-president Abdulaziz Al Gudaimi, who now heads up the company’s unprofitable downstream business.
The change, it said, “constitutes a refinement” of Aramco’s existing structure, not a fundamental organisational change. But it does suggest that the company is adapting itself to look more like its private-sector rivals such as ExxonMobil or Royal Dutch Shell.
Aramco has never had to worry much about its portfolio of assets before. It developed oilfields at home in Saudi Arabia, building and operating the infrastructure to process, transport, export and refine its output. And, increasingly, it invested in joint ventures with overseas processors to refine its crude and lock in guaranteed markets.
With huge profits to be made in the upstream sector of the business — finding, producing and selling crude oil — crude prices and production volumes have been the driver of corporate profit across the industry. But, as I have noted previously, that’s a model that has been turned on its head in 2020.
Western oil companies have weathered the Covid-19 storm by slashing dividend payments, and in the case of the European majors, the successes of their trading departments — both things Aramco couldn’t tap.
Aramco has been hit twice by the pandemic and taken heavier blows than its competitors. First, the collapse in global demand triggered a rout in oil prices, taking Brent from almost $70 a barrel at the start of the year to below $20 in mid-April. Prices are now back at about $45 a barrel, but have been stuck there, as the recovery in demand has faltered.
The second punch came from the Saudi-led oil cartel and allied producers Opec+ response that saw the 23-nation group cut production by a record 9.7-million barrels per day (bpd) in May. That slashed the volume ...
