Saudi Aramco sticks to $18.8bn dividend despite 25% drop in profits

Saudi Aramco on Tuesday declared the world’s largest quarterly dividend of $18.8bn, despite suffering a 25 per cent fall in first-quarter earnings because of the collapse of the oil price.

Saudi Arabia’s state energy group reported net income of $16.7bn in the first three months of the year, against $22.2bn a year earlier, as lockdowns reduced global oil demand by a third from pre-crisis levels. The plunge in crude prices, down more than half since January, have wreaked havoc on the country’s finances.

Although its latest quarterly payout, which will largely go to the government in Riyadh, is in line with its annual $75bn dividend target, the company did not recommit to this pledge. The first-quarter dividend is far greater than free cash flow for the period of $15bn, meaning the company may have to borrow to cover it. 

But with a gearing ratio of minus 4.9 per cent, Saudi Arabia’s biggest revenue earner has room to raise funds to buffer the kingdom from the financial hit of coronavirus.

“The Covid-19 crisis is unlike anything the world has experienced in recent history,” said Amin Nasser, Saudi Aramco’s chief executive, adding that the pandemic’s impact on global energy demand and oil prices would continue to weigh on earnings.

Oil sales still provide the bulk of the kingdom’s revenues, meaning the resource-rich country is beholden to the crude price despite a push by Crown Prince Mohammed bin Salman to diversify into other sectors.

Saudi Arabia has introduced austerity measures to conserve cash — from cutting capital spending to raising value added tax and cancelling cost-of-living allowances for state employees.

While Saudi Aramco is affected by market swings like other listed energy majors, its executives must also manage the whims of the kingdom’s highest authorities, who dictate oil policy.

In March the company said it had been issued a government directive to expand production to record levels and boost capacity to 13m barrels a day, from 12m b/d, as Saudi Arabia engaged in a price war with Russia. Barely two months later, it has been asked to cut production to 7.5m b/d from June — the lowest in 18 years — as the kingdom desperately tries to boost prices.

Since its $29.4bn offering on Riyadh’s Tadawul exchange in December, which valued Saudi Aramco at $1.7tn, shares in the world’s most profitable company have fallen below their flotation price.

The company in March said it would cut capital spending to as low as $25bn this year, from $33bn in 2019.

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

Meanwhile, Rosneft, Russia’s biggest oil company and the world’s largest listed oil producer after Saudi Aramco, said it would cut capital expenditure by more than 20 per cent this year as it adjusts to the crash in oil prices.

Saudi Aramco’s total revenues including income related to sales stood at $51.4bn in the first quarter of this year, down from $63.2bn a year earlier. The company also reported weaker refining and chemicals margins.

Saudi Aramco said its plan to acquire a majority stake in petrochemicals company Sabic from the kingdom’s Public Investment Fund was on track to close in the second quarter.

But payments for the deal, originally agreed at $69bn, are expected to be restructured, said people familiar with the matter.

Additional reporting by Henry Foy

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