Saudi Aramco net profit drops 45% in third quarter

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Oil tanks at an oil processing facility of Saudi Aramco, a Saudi state-owned oil and gas company, at the Abqaiq oil field.Stanislav Krasilnikov | TASS via Getty Images

DUBAI, United Arab Emirates – Saudi Aramco’s net profit fell 44.6% in the third quarter of 2020 compared to the same period last year, reflecting the continued damage to oil demand and prices of the global coronavirus pandemic.Net profit fell to 44.21 billion riyal ($ 11.8 billion) this quarter, from 79.84 billion riyal in the third quarter of 2019.

The figure is in line with analysts’ estimates, showing a recovery from the historic drop in revenue in the second quarter which saw profits fall to 24.75 billion riyals.

The Saudi kingdom’s state oil company saw crude oil prices and sales volumes drop, along with lower refining and chemicals margins, the company said in its statement on Tuesday. It has also seen a decrease in oil production royalties, a drop in the royalty rate from 20% to 15%, and a drop in income taxes and zakat (Islamic taxes).

The domestic producer maintained its third quarter dividend of $ 18.75 billion, payable in the fourth quarter. Its second quarter dividend was declared at the same level in August, also payable in the following quarter. Aramco’s first quarter dividend was paid in the second quarter.

Aramco listed 1.5% of its stock locally on Saudi Tadawul last year, which analysts say has reshaped many of the company’s priorities, including that of its commitment to shareholders.

“Aramco made this very strong dividend commitment to shareholders as part of the IPO,” Neil Beveridge, a senior oil and gas analyst at Bernstein, told CNBC’s “Capital Connection” Tuesday.

“And that was really a fundamental promise, I think, for any investor investing in Saudi Aramco and it’s something that… the company will want to keep, in the sense of its commitment to the IPO. “

Like virtually all oil producers, the company has announced significant cuts in its capital spending, as crude prices collapse with the onset of the pandemic. Investments for the third quarter were $ 6.4 billion, with projects including a $ 20 billion crude oil-to-chemicals project with the Saudi Basic Industries Corporation (SABIC) put on hold or under “reassessment.” “.

“Aramco is doing everything it can to increase efficiency and reduce costs, but that doesn’t necessarily mean increased investment,” Beveridge said. “Remember that a lot of the capex expansion plan that was envisioned was about increasing capacity and that capacity is just not needed in the market right now, so I think the capex cuts are the prudent thing to do. ”

Aramco said it expects capital spending to be in the lower end of the $ 25 billion to $ 30 billion range for 2020, down from $ 32.7 billion for 2019.

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