2020 was a bad year for Saudi Aramco, with the company reporting a 44% drop in profits. In addition to the considerable profit slump, the company's debt-to-equity ratio more than doubled.
The sudden worldwide spread of the coronavirus and the subsequent and still ongoing pandemic wrought havoc with oil demand due to reduced worldwide travel from government-mandated restrictions. Like many oil companies, Saudi Aramco faced a market so massively oversupplied that firms struggled to find storage space for crude oil, which took a heavy toll on the Arabian oil giant.
Aramco reported earnings of about $49 billion for the year, down 44% from the $88.2 billion the company made in 2019. The company's debt-to-equity ratio did not fare much better, more than doubling to $161.6 billion from $72.05 billion in 2019. Despite this, Aramco still paid out its $75 billion dividend (the vast majority of which will go to the Saudi government, which owns 98% of Aramco's shares). The payout, however, contributed to Aramco's increased debt, as the firm was forced to borrow money to pay its dividend.
HSBC (OTC: HBCYF), however, sees greener pastures ahead for the world's largest oil firm. The investment bank spoke on Aramco last month, saying that its prospects for 2021 looked far more promising. Saudi Aramco CEO Amin Nasser shared HSBC's rosy sentiment, stating that he felt bullish about the company's prospects going forward, mainly because of a predicted rise in oil demand as vaccination efforts curb the spread of the Coronavirus and because of a similar predicted spike in demand for Hydrogen, which the company claims it has several key advantages in.
Despite the potential for a rebound in 2021 Saudi Aramco may still seem like a hard sell to some investors. The company is listed exclusively on the Tadawul exchange, and due to rule changes made in 2015, it is challenging for foreign investors to invest in Tadawul listed firms. In addition to the obstacles to obtaining shares, it's no secret that the oil industry is contracting.
In February, Royal Dutch Shell (NYSE: RDS.A) announced that its production had hit a lifetime peak in 2019 and would shrink every year going forward, a bellwether of things to come for the oil industry. The transition to eco-friendly energy has been eating into the oil sector for years, which poses a threat to Aramco can't capitalize on alternative fuels such as Hydrogen well enough to maintain its market share. Ongoing violence in the Middle East also poses an ongoing threat as well, with an Aramco-owned facility falling victim to a drone strike by the Houthi rebel group on Friday.
Saudi Aramco shares didn't appear to be immediately affected by the news on Monday, gaining a slim 0.4% during trading. The news seemed to sneak up on Aramco on Tuesday, however, with shares slipping 1.3%.