Page 13 - DMEA Week 19 2020

DMEA COMMENTARY DMEA
Aramco reports 25% dip in Q1 profits
Saudi Aramco blamed the result on low prices and weaker chemical and refining margins
SAUDI ARABIA
WHAT:
Saudi Aramco’s income fell due to lower prices in Q1.
WHY:
The company was stung by the oil price rout in March, and its oil production was still capped under the previous OPEC+ agreement.
WHAT NEXT:
Aramco is looking to restructure the purchase of SABIC for a third time.
NET profits at Saudi Aramco tumbled 25% year on year in the first quarter, landing at SAR62.5bn ($16.6bn), as low oil prices took their toll on the oil giant’s margins. Earnings before interest and taxes (EBIT) fell 23% to SAR128.3bn, while free cash flow (FCF) shrank to SAR56.3bn.
Aramco attributed the weaker numbers to “lower crude oil prices, as well as declining refin- ing and chemicals margins,” along with other financial pressures. But it said its performance was nevertheless “exceptionally strong” given the crisis, citing its “prudent balance sheet manage- ment and low cost structure.”
The company’s average price for oil dropped from $63.6 to $51.8 per barrel. Most of this decline was naturally felt in March, after Saudi Arabia, Russia and other OPEC+ failed to agree on renewed cuts, triggering a rout in prices. Aramco’s production was meanwhile capped at 9.8mn barrels per day (bpd) of oil during the quarter, under the previous OPEC+ agreement.
Production and prices
Despite the price crunch, Aramco said it would pay out $18.75bn in dividends from its first-quarter income, putting it on track to meet its pledge of $75bn in payments for the full year.
Its dividends for the three-month period are “the highest of any listed company worldwide” and would be distributed in the second quarter.
But like its international peers, Aramco has also had to rein in spending. It has limited its capital expenditure in 2020 to $25-30bn, down from $32.8bn in 2019 and $35.1bn in 2018.
“Looking ahead to the remainder of 2020, we expect the impact of the COVID-19 pandemic on global energy demand and oil prices to weigh on our earnings,” CEO Amin Nasser said in a statement. “We continue to reinforce the busi- ness during this period by reducing our capex and driving operational excellence. Longer term, we remain confident that demand for energy will rebound as global economies recover.”
After recovering somewhat from near two-decade lows in April, Brent now stubbornly hovers around $30 per barrel, despite cutbacks to supply. Coronavirus (COVID-19) lockdowns in most major economies remain in place, and even after restrictions are eased, economic weakness will weigh down on demand.
At the same time, Aramco is spearheading global efforts to rebalance supply with con- sumption. After pumping 12mn bpd in April, free from any OPEC+ obligations, it has agreed
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