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Saudi Aramco earnings slide 25% after oil price collapse

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Via Financial Times

Saudi Aramco has reported a 25 per cent drop in first-quarter earnings, hit by the oil price collapse and demand crunch stemming from the coronavirus pandemic, further squeezing Saudi Arabia’s finances.

The state energy company on Tuesday reported net income of $16.7bn in the first three months of the year, against $22.2bn a year earlier, as lockdowns hit global demand by a third from pre-crisis levels.

The plunge in oil prices, down more than half since January, is wreaking havoc on Saudi Arabia’s finances. The kingdom has introduced austerity measures to conserve cash — from cutting capital spending to raising VAT and cancelling cost-of-living allowances for state employees.

“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.

The company, which has promised shareholders $75bn in dividends this year, said it would pay $18.8bn for the first quarter. Because that is more than free cash flow of $15bn for the period, the company may have to borrow to cover the payout.

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

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

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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 was asked to cut production to 7.5m b/d from June — the lowest in 18 years.

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

The company said in March 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.

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 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, according to people familiar with the matter.

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