Saudi Aramco earnings slide 25% after oil price collapse

Saudi Aramco reported a 25 per cent drop in first-quarter earnings as the kingdom’s biggest revenue earner suffered from a collapse in oil prices and a demand crunch stemming from the coronavirus pandemic, in a further squeeze to the producer nation’s finances.

Saudi Arabia’s state energy company on Tuesday reported net income of $16.7bn in the first three months of this year, from $22.2bn in the same period a year ago, as lockdowns and travel bans to contain the virus hit global demand by a third from pre-crisis levels.

The collapse of the price of oil by more than half since January is wreaking havoc on the kingdom’s finances, with Saudi Arabia forced to enact austerity measures to conserve cash — from cutting capital spending to raising VAT and cancelling cost-of-living allowances for state employees.

Amin Nasser, Saudi Aramco’s chief executive, said: “The Covid-19 crisis is unlike anything the world has experienced in recent history”.

Looking ahead, he said, the impact of the pandemic on global energy demand and oil prices will weigh on earnings.

The company also noted weaker refining and chemicals margins.

While Saudi Aramco is affected by crude market swings like other listed energy majors, company executives have to also manage the whims of the kingdom’s highest authorities that dictate oil policy and influence global energy prices.

In March, the company said it had been issued a directive by the government to expand production and its maximum capacity to 13m barrels a day, from 12m b/d, as Saudi Arabia engaged in a price war. Barely two months later, it has been asked to cut production to 7.5m b/d from June.

Since listing its shares in a mega $29.4bn offering on Saudi Arabia’s Tadawul exchange in December that valued the company at $1.7tn, shares in the company have fallen below its flotation price of SR32 amid the oil market turmoil.

Even the world’s most profitable company is not immune to the oil price collapse and the economic fallout from the spread of coronavirus. It said in March it would cut capital spending from $33bn in 2019 to as low as $25bn in 2020.

“Going forward, we retain significant flexibility to further adjust expenditures in response to the disruption caused by the coronavirus on both economic activity and energy demand,” said Mr Nasser.

Saudi Aramco said total revenues including income related to sales were at $51.4bn in the first quarter of this year, down from $63.2bn a year earlier

The company, which has promised to pay shareholders $75bn in dividends this year, said it will pay $18.8bn for the first quarter.

Saudi Aramco has a gearing ratio of -4.9 per cent, leaving a lot of room to borrow in order to buffer the kingdom from the financial hit of coronavirus.

Free cash flow came in at $15bn in the first quarter, versus $17.4bn in the same period last year.

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