Saudi Aramco’s capex cut may impact BPCL investment plans

25 March 2020 (Last Updated March 25th, 2020 11:16)

State-owned oil company Saudi Aramco will cut $25bn-$30bn from its capital expenditure in response to the coronavirus pandemic.

Saudi Aramco’s capex cut may impact BPCL investment plans
Indian government is planning to divest its interest in BPCL and Saudi Aramco is seen as the front runner. Credit: Saudi Arabian Oil Co.

State-owned oil company Saudi Aramco will cut $25bn-$30bn from its capital expenditure in response to the coronavirus pandemic.

However, analysts have said this may affect its acquisitions over coming months.

Aramco plans to acquire stakes in Bharat Petroleum Corporation Limited (BPCL), as well as Reliance Industries oil-to-chemicals business.

The Indian government is looking at divesting its 52.98% stake in BPCL. Saudi Aramco’s annual report said it intends to focus on high-growth markets such as India in the downstream segment. As such, Aramco is considered to be one of the front runners in acquiring the BPCL interest.

The total value of BPCL’s shares has fallen by more than 50% to $7.4bn (Rs569.1bn) on Tuesday. By comparison, it was worth $15.7bn (Rs1.2tn) in November 2019. At the current price, the 52.98% stake will be valued at Rs301.5bn.

Aramco plans to reduce its capex in 2020 to $25bn-$30bn from the initial $35-40bn due to concerns over oil demand as a result of Covid-19 outbreak, reported The Hindu.

In 2019, Saudi Aramco’s capex stood at $32.8bn in 2019.

It intends to boost oil production to 12.3 million barrels per day (mbpd), up from 9.7 mbpd. It is a major player in the ongoing oil price war between OPEC countries and Russia.

Indian newspaper The Hindu reported on a Saudi Aramco conference call where the company said it was still carrying out due diligence on a potential investment in Reliance Industries oil-to-chemicals business.

An official of a state-owned business told the paper: “However, given the market conditions, the valuations of the both the deals could change to a great extent.”