Saudi Aramco third-quarter profit slides as virus stifles oil demand
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Energy giant Saudi Aramco yesterday posted a 44.6 percent slump in third-quarter profit, as the coronavirus pandemic weighs heavily on the global demand for crude oil.
Aramco, seen as Saudi Arabia鈥檚 cash cow, has revealed consecutive falls in quarterly profits since it began disclosing earnings last year, piling pressure on government finances as it pursues ambitious multi-billion dollar projects to diversify the oil-reliant economy.
The world鈥檚 most valuable listed company said it was committed to a bumper dividend even as third quarter net profits dropped to 44.21 billion Saudi riyals (US$11.79 billion), compared to US$21.3 billion in the same period last year.
Aramco鈥檚 net profit for the first nine months of this year also dropped 48.6 percent to US$35.02 billion, it said.
The latest results are in line with analysts鈥 expectations but stand in contrast to the losses reported by Aramco鈥檚 rivals, which are reeling from pandemic-driven economic shutdowns that have suppressed energy requirements.
Although the results underscore a downbeat market, Aramco鈥檚 July-September results showed an improvement amid relatively steady crude prices compared to the second quarter, when it posted a profit of US$6.57 billion.
鈥淲e saw early signs of a recovery in the third quarter due to improved economic activity, despite the headwinds facing global energy markets,鈥 Aramco鈥檚 chief executive Amin Nasser said in the statement.
鈥淲e continue to adopt a disciplined and flexible approach to capital allocation in the face of market volatility. We are confident in Aramco鈥檚 ability to manage through these challenging times and deliver on our objectives.鈥
Nasser said Aramco was committed to delivering a dividend of US$18.75 billion to shareholders for the third quarter 鈥 an amount that exceeds the declared profit and the available cash flow.
The announcement is in line with the company鈥檚 pledge to pay an annual dividend of US$75 billion after it floated a sliver of its shares last year in the world鈥檚 biggest IPO.
鈥淎ramco鈥檚 dividend payout is now much bigger than its income,鈥 said Tarek Fadlallah, chief executive officer of the Middle East unit of Nomura Asset Management.
鈥淣ot a problem if oil rebounds next year. But it will be a big problem if it doesn鈥檛.鈥
Amid weakening oil prices and flat output, Aramco may have to continue funding its bumper dividend by 鈥渂orrowing in the short term,鈥 said investment research firm Bernstein.
Dividend payments from Aramco help the Saudi government 鈥 the company鈥檚 biggest share holder 鈥 manage its ballooning budget deficit.
Last month, several oil giants, including ExxonMobil and Chevron, reported another quarter of red ink as uncertainty over oil demand forced the energy sector to rein in spending.
By contrast, Aramco鈥檚 results reflected its 鈥渞esilience,鈥 Nasser said.
But the Saudi giant is bracing for a possible further wave of coronavirus infections that could undermine a tentative global economic recovery and further erode the demand for crude worldwide, analysts say.
The company has cut its capital spending this year and also slashed hundreds of jobs as it seeks to reduce costs, Bloomberg News reported in June.
Saudi Arabia, the world鈥檚 biggest crude exporter, has been hit hard by the double whammy of low prices and sharp cuts in production.
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