The world’s biggest oil company is getting squeezed by its main shareholder, the Saudi Arabian government.
Even with crude dropping below $40 a barrel this week and its cash flow plunging, Saudi Aramco is trying to pay a $75 billion dividend this year, almost all of it to the state. Concerns are mounting, including among global fund managers who bought into the company during a record initial public offering last December, that Aramco is putting strategic projects on ice and racking up debt too quickly.
Aramco has been the country’s cash cow for decades. But the pressure it faces has been thrown into sharper relief by the coronavirus-induced collapse in energy demand — Brent crude fell another 5% on Tuesday — and now that it’s a listed firm with shareholders from New York to Tokyo.
Crown Prince Mohammed bin Salman, the 35-year-old de facto ruler, has pledged to diversify the kingdom from oil and spend billions developing everything from futuristic cities to tourism and financial services. For that, he needs Aramco’s money.
“The crown prince has basically decided the company is a piggy bank he can raid to fund his other projects,” said Jean-Francois Seznec, a senior fellow at the Atlantic Council of Washington’s Global Energy Center, and a Middle Eastern specialist. “It will limit how much they can invest in things like maintaining the oil fields and developing new technologies.”
The government has previously leveraged Aramco’s balance sheet to bolster its own finances. But it hasn’t happened to this extent for at least 20 years, according to one banker who’s worked with the company since the 1990s.