Saudi Arabia’s state oil company plans to cut capital expenditure to US$25 billion or less next year, about half the amount it was originally planning, according to people familiar with the matter.

Saudi Aramco may keep capex, most of which is spent on exploration and production, at a similar level until at least 2023, the people said, asking not to be named as the matter isn’t public yet.

The Dhahran-based firm is having to slash some spending as it looks to pay shareholders a US$75 billion dividend this year, despite coronavirus lockdowns causing the price of oil to crash. The company also wants to keep spending reined in while its gearing ratio, debt as a portion of equity, exceeds its target range of 5 per cent to 15 per cent.

“Aramco has a large component of capex that is geared toward new projects that will just get delayed. They don’t want to put pressure on their balance sheet while commodity prices are low,” said David Havens, managing director of energy equity research at SMBC Nikko Securities America. “Also, a big part of it is to protect the dividend.”

Capex for this year will be at the lower end of the US$25 billion-to-US$30 billion range set in March, Chief Executive Officer Amin Nasser said on Sunday as Aramco announced second-quarter results. A day later, he said 2021 capex would be “significantly” lower than the company’s official guidance of US$40 billion to US$45 billion.

“We have placed capital expenditures for 2021 and beyond under review,” a spokesperson said in a statement on Wednesday. “We analyze future projects based on strategic, operational, commercial and financial targets.”

Earlier this week, Aramco executives committed to paying out US$75 billion to shareholders for several years, even as profit plunged more than 70 per cent year-on-year in the second quarter, and gearing rose to 20.1 per cent. Free cash flow for the first half of the year was US$21.1 billion, lower than the amount the company committed to paying out in dividends.

“They view their ability to maintain the dividend as a competitive advantage over other oil companies, and they can cut back on capex without putting themselves in a precarious position to ramp up production when demand recovers,” said Havens.

The Financial Times first reported the spending cuts earlier