Saudi's try to raise cash with sale of pipeline suggesting a cash flow issue
Saudi Aramco, the world’s largest oil producer, is weighing the sale of a stake in its pipeline unit to raise money amid a slump in crude prices, according to people familiar with the matter.This does not look like a good time to get top dollar for assets in any business, much less one where the market for its product is literally in the tank or tanker. Flooding the market with oil that you have to pay to store is looking like a bad strategy to deal with the glut at this point. It would have been cheaper to leave the oil in the ground until the markets recover.
Aramco may need to raise cash this year as it confronts a historic rout in oil prices and a burgeoning list of spending obligations. The company has reaffirmed its commitment to pay out $75 billion in dividends this year and also needs to make the first installment for its $70 billion acquisition of a stake in chemicals producer Saudi Basic Industries Corp.
Aramco, the world’s most valuable publicly traded company after selling shares on the Riyadh exchange last year, could raise more than $10 billion from the sale, the people said, asking not to be identified as the information is private. Aramco has already held some preliminary discussions with potential advisers on the deal, but talks are still at an early stage and Aramco may decide against a sale, the people said.
Aramco is ramping up oil supply at a time demand is falling off a cliff as travel restrictions are placed on people all around the world to stop the spread of coronavirus. The company has said it will keeping flooding the market with historic levels of oil at least through May, but the extra volume isn’t enough to compensate for the 67% drop in prices this year.
The crash has already caused Aramco to slash planned spending. Capital expenditure would be between $25 billion and $30 billion in 2020 and spending plans for next year and beyond are being reviewed. The oil giant is lowering that range from the planned $35 billion to $40 billion announced in its IPO prospectus.