Oil giant Saudi Aramco sticks with dividend even as profit crashes 73%

The world's biggest oil exporter said the rapid spread of Covid-19 globally had significantly reduced demand for crude oil. PHOTO: REUTERS

DUBAI (BLOOMBERG) - Saudi Arabia's state-controlled oil giant pressed ahead with a plan to pay US$75 billion (S$102.9 billion) in dividends this year even as profit slumped and debt surged, as the kingdom battles a widening budget deficit.

Saudi Aramco, which Apple recently dethroned as the world's most valuable listed company, said net income in the three months ending in June was 24.6 billion riyals (S$9 billion), down 73 per cent from a year earlier, according to a statement on Sunday (Aug 9).

Aramco will pay a dividend of US$18.75 billion for the quarter, most of it to the government, which owns around 98 per cent of the company's stock.

"Strong headwinds from reduced demand and lower oil prices are reflected in our second quarter results," said chief executive officer Amin Nasser.

"We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies."

The results cap a turbulent period for the world's biggest oil exporter. Prices briefly turned negative in the United States in April as virus lockdowns battered the global economy and Aramco slashed hundreds of jobs.

Saudi Arabia and Russia subsequently led a push by Organisation of the Petroleum Exporting Countries and its partners to reduce production and prop up crude prices. Though they've rallied, Brent is still down 33 per cent this year.

Rivals including BP and Royal Dutch Shell have cut their dividends.

Saudi Arabia generates most of its revenue from crude and its budget deficit is set to exceed 12 per cent of gross domestic product in 2020, according to the International Monetary Fund. That would be the widest since 2016, adding pressure on Aramco to maintain dividend payments.

Aramco's shares rose 0.3 per cent to 33.05 riyals in Riyadh as of 10.31am on Sunday. They've declined 6.2 per cent this year, much less than the likes of Exxon Mobil, which has fallen 38 per cent, and Shell, down 50 per cent.

The Dhahran-based firm's gearing ratio soared to 20.1 per cent at the end of June from minus 5 per cent in March. That was in large part due to the debt Aramco took on when it bought chemicals company Saudi Basic Industries for US$70 billion.

The deal was funded by a loan from the Saudi Arabia's sovereign wealth fund, which Aramco plans to finish repaying in 2028.

Aramco said in June it may issue more bonds or loans to meet its dividend commitment. Capital expenditure will be at the lower end of the US$25 billion-to-US$30 billion range it set in March, according to Sunday's statement. That's already down from the company's plan at the start of 2020 to spend between US$35 billion and US$40 billion.

Aramco's Fadhili natural-gas plant reached full production capacity of 2.5 billion standard cubic feet during the second quarter. The company is boosting gas output to feed local businesses and replace valuable crude that power plants burn to meet rising demand for air conditioning during the summer.

Aramco started the Fadhili gas plant last year and has gradually ramped up output.

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