Oil Giant Aramco Sticks With Dividend Even as Profit Crashes
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Saudi Arabia’s state-controlled oil giant pressed ahead with a plan to pay $75 billion in dividends this year despite crashing profit and a surge in debt, as the kingdom battles a widening budget deficit.
Saudi Aramco, whichApple Inc. recently dethroned as the world’s most valuable listed company, said net income in the three months ending in June was 24.6 billion riyals ($6.6 billion), down 73% from a year earlier, according to astatement. Aramco will pay a dividend of $18.75 billion for the quarter, most of it to the government, which owns around 98% of the company’s stock.
“Strong headwinds from reduced demand and lower oil prices are reflected in our second quarter results,” said Chief Executive Officer Amin Nasser. “We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies.”
The results cap a turbulent period for the world’s biggest oil exporter. Prices briefly turned negative in the U.S. in April as virus lockdowns battered the global economy and Aramcoslashed hundreds of jobs.
Saudi Arabia and Russia subsequently led a push by Organization of the Petroleum Exporting Countries and its partners to reduce production and prop up crude prices. Though they’ve rallied, Brent is still down 33% this year.
Rivals including BP Plc and Royal Dutch Shell Plc havecut their dividends.
Saudi Arabia generates most of its revenue from crude and its budget deficit is set to exceed 12% of gross domestic product in 2020, according to theInternational Monetary Fund. That would be the widest since 2016, adding pressure on Aramco to maintain dividend payments.
Aramco’s shares rose 0.3% to33.05 riyals in Riyadh as of 10:31 a.m. on Sunday. They’ve declined 6.2% this year, much less than the likes of Exxon Mobil Corp., which has fallen 38%, and Shell, down 50%.
The Dhahran-based firm’s gearing ratio soared to 20.1% at the end of June from minus 5% in March. That was in large part due to the debt Aramco took on when it bought chemicals company Saudi Basic Industries Corp. for $70 billion. The deal was funded by a loan from the Saudi Arabia’s sovereign wealth fund, which Aramco plans tofinish repaying in 2028.
Aramco said in June it mayissue more bonds or loans to meet its dividend commitment.
Capital expenditure will be at the lower end of the $25 billion-to-$30 billion range it set in March, according to Sunday’s statement. That’s already down from the company’s plan at the start of 2020 to spend between $35 billion and $40 billion.
Aramco’s Fadhili natural-gas plant reached full production capacity of 2.5 billion standard cubic feet during the second quarter. The company is boosting gas output to feed local businesses and replace valuable crude that power plantsburn to meet rising demand for air conditioning during the summer. Aramco started the Fadhili gas plant last year and has gradually ramped up output.
— With assistance by Anthony Di Paola
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