[Newsphopick=Kingsley Lim] Saudi Arabia’s state oil giant, Aramco reported a 73 percent fall in its second quarter profits as the coronavirus pandemic ravages the global economy. The depression in energy demand and prices was singled out as the main contributory factor to the decline in sales at the world’s largest exporter.
The coronavirus pandemic has been the single most devastating force in the energy markets in the last decade. As governments across the world promulgated social restrictions and lockdowns to curb the spread of the virus, this had unexpectedly caused a fall in business activity around the globe. As such global oil consumption had fallen sharply accompanied by a significant fall in oil prices not seen in the last twenty years.
Oil companies which have been at the centre of the turmoil in the oil markets have seen reduced levels of oil consumption and many have reported losses for the second quarter. While the fate of Saudi’s Aramco is no different, its managers have decided to pay out dividends worth US$75 billion this year in efforts to prop up the stock price.
According to the CEO Amin Nasser, the company sees signs of recovery in global oil demand despite the recent fall in oil prices. Aramco, which was listed in Riyadh last year, said that the spread of the coronavirus had led to a fall in global demand for natural gas, crude oil and petroleum products in the second quarter.
Nasser told press reporters that there are signs of a recovery in the third quarter as the coronavirus-induced lockdowns are lifted and economies gradually recover. Nasser said “Look at China, their gasoline and diesel demand is almost at pre-COVID 19 levels. We are seeing that Asia is picking up and other markets [too],” suggesting that China is leading the economic recovery.
“As countries ease the lockdown, we expect the demand to increase,” he added.
Nasser also said that the company would like to continue with the dividend program planned for 2020. The company intends to pay a US$75 billion dividend, which is subject to board approval and market conditions. According to observers, this is a departure from market norms as many companies have been forced to slash their dividends and focus on deleveraging.
Aramco reported a 73.4% decrease in second-quarter net income, which was a far cry from what analysts had forecasted. According to the company, it expects capital expenditure for 2020 to be between US$25 billion to US$30 billion, while suggesting that it is targeting to hit the lower end of that range.
The company’s net profit fell to 24.6 billion riyals for the quarter. This was less than a profit of 92.6 billion riyals reported in the year-ago period.
“Aramco figures are healthy compared to other global peers,” said Mazen al-Sudairi, the head of research at Al Rajhi Capital. “This was the worst quarter in the modern history of oil industry, and surviving it with healthy figures points to a very positive outlook.”