Aramco pays record $18.7bn dividend to shareholders
Oil giant ‘resilient in face of challenges’
Saudi Aramco maintained its position as the most profitable company in the world on Tuesday with a near $17 billion profit in the first three months of 2020 and a record dividend payout to shareholders.
In what it described as a “resilient performance despite challenging market conditions,” the state oil company made more money in the quarter than the combined profits of the five other big independent oil companies in recent results.
Amin Nasser, Aramco’s president and chief executive, pulled no punches on the economic effects of the coronavirus pandemic. “The COVID-19 crisis is unlike anything the world has experienced in recent history, and we are adapting to a highly complex and rapidly changing business environment,” he said. There had been speculation that Aramco might cut its dividend to some shareholders, but the declared dividend of $18.7 billion to be paid in the current quarter will be the biggest from any listed company in the world, Nasser said, and follows a $13.4 billion payout in the first three months.
Cash flow, balance sheet and borrowing ratios were all “robust,” he said, and he committed Aramco itself to spend between $25 billion and $30 billion on investment in energy this year.
Most of the company’s peer group, including most recently the Russian giant Rosneft, have cut back on capital investment in the wake of plunging prices and collapsing demand for oil in the global economic lockdown brought about by the coronavirus pandemic.
The first three months of 2020 was one of the most traumatic periods the oil industry has ever endured. The price of a barrel of Brent crude, the global benchmark, plunged by more than 50 percent as global demand dropped by about 30 percent. Brent stood at just above $30 yesterday, buoyed slightly by Saudi Arabia’s promise on Monday to cut output in June by a further 1 million barrels of oil per day.
Nasser said the pandemic impact would continue to weigh on Aramco’s business, but he added: “Longer term we remain confident that demand for energy will rebound as global economies recover.”
Aramco made more money in the quarter than the combined profits of the five other big independent oil companies.
Although the first quarter profit was nearly 25 per cent lower than the comparable period last year, when the oil price was double, analysts said the results demonstrated the strength in depth of Aramco’s business.
Majed Kabbara, managing director of Quencia Capital in Dubai, said: “Given the pressure on oil prices, Aramco came in slightly lower than expectations. The pressure will continue, but Aramco has a strong balance sheet and a low cost structure that will allow it to weather the storm.” Aramco shares closed at SR31.30 on the Tadawul stock exchange in Riyadh.
Saudi Aramco, the world’s biggest oil company, announced net profits of $16.7 billion for the first quarter of 2020, a period that saw the beginning of the collapse in demand in global oil markets because of the lockdowns in all major economies.
In accordance with the levels indicated at the time of the initial public offering last December, Aramco paid a dividend of $13.4 billion in the quarter, and declared it would pay $18.75 billion to shareholders in the next quarter — the biggest dividend of any listed company in the world.
That result — the first time Aramco has reported financials as a publicly listed company — was down nearly 25 percent compared with the same period last year, but was significantly less than the fall in oil prices, which roughly halved over the three-month period. Revenues were down by about 16 percent at $60.2 billion.
On the Saudi Stock Exchange (Tadawul), the shares rose 1.29 percent to SR31.3 ($8.33) on the results announcement.
“The COVID-19 crisis is unlike anything the world has experienced in recent history, and we are adapting to a highly complex and rapidly changing business environment,” said Aramco President and CEO Amin Nasser. “Aramco has demonstrated resilience during economic cycles, and has an unparalleled position due to a strong balance sheet and low-cost structure,” he added.
“We have delivered solid earnings with robust free cash flow, despite weak energy demand and low oil prices. We remain committed to the safety of our
We are adapting to a highly complex and rapidly changing business environment.
Amin Nasser
Aramco president and CEO
people while delivering on our long-term value-creation strategy for all of our shareholders.”
Cash flow from operating activities came to $22.4 billion, around $7 billion more than Shell, its closest rival in terms of cash flow. Shell recently dropped its dividend for the first time in 75 years. Aramco’s profits were more than double those of the five big oil companies combined.
Analysts said the results show that Aramco is more resilient to volatile global energy markets than other big oil companies.
Its 25 percent profit decline compared with an average of 35 percent down by the five big oil companies over the past fortnight. Nasser said he expects further challenging conditions in oil markets. “Looking ahead to the remainder of 2020, we expect the impact of the pandemic on global energy demand and oil prices to weigh on our earnings,” he added.
“We continue to reinforce the business during this period by reducing our capital expenditure and driving operational excellence. Longer term, we remain confident that demand for energy will rebound as global economies recover.” Capital expenditure will be held between $25 billion and $30 billion for the rest of the year, but is under review for next year and beyond. “We retain significant flexibility to adjust expenditures, and have considerable experience in managing the business through times of adversity,” Nasser said. “This resilience will enable us to continue delivering on our commitments to our shareholders.” Analysts said the first-quarter performance was creditable given the background of turmoil in global oil markets.
Majed Kabbara, managing director of Dubai-based Quencia Capital, said: “Given the pressure on oil prices, Aramco came in slightly lower than expectations. The pressure will continue, but Aramco has a strong balance sheet and a low-cost structure that will allow it to weather the storm.” He added that Brent crude averaged $51 per barrel in the quarter, while so far in the second quarter it has been trading at around $27.5 per barrel.
Aramco told Reuters that its planned acquisition of a 70 percent equity stake in Saudi petrochemical maker SABIC is on track to close in the second quarter. “Despite a challenging market environment, the downstream business is keeping pace with its long-term strategy to capture value across the hydrocarbon value chain through further strategic integration and diversification of its operations,” Aramco said.