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Saudi Aramco is considering a stake sale of its oil pipeline unit to raise some much-needed cash, as the reality of the oil price war it started with Russia sets in: the Saudi’s move to crush other oil producers may be too successful, leaving the world’s largest oil company rather cash poor along with the rest of the world.
The sale of a piece of its pipeline unit could bring in $10 billion, at a time when Aramco is facing billions in payments due in 2020: $75 billion in dividend payments and the first installment for its SABIC acquisition.
Those financial obligations will now prove an arduous task for Aramco, who is still actively drowning the oil market in oil. Meanwhile, the coronavirus has destroyed demand for crude oil. The combination has created a perfect storm for oil prices, sending WTI below $20 per barrel on Monday, and Brent crude below $26.
Arab Light is trading just below $23, which is well below what most analysts suspect is their true breakeven, which factors in what Saudi Arabia’s budget requires to balance. Aramco pays 50% of its net profits to the state, and a 20% royalty of its oil sales to the state for the use of the oilfields.
Despite the tough times that Saudi Arabia is going through of its own volition, it is still aggressively pursuing its pump-at-will policy and increased exports that have included Saudi Arabia commissioning VLCCs above and beyond its own fleet to carry all the extra oil to market.
The proposed pipeline stake sale will only offset a portion of the bills that will come due for Aramco this year, and Saudi Arabia will not be able to withstand these low oil prices indefinitely. Still, Saudi Arabia is in a tough spot and feels the need to save face in this oil price war.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.