The COVID-19 caused the crude oil prices to drop to an unimaginable position forcing almost all oil producers including Saudi Aramco to respond by cutting capital expenditures.
Saudi Aramco (TADAWUL: 2222) was severely affected by the global pandemic which has done a lot of damage to the demand for oil affecting its price. According to a report, the company recorded a 44.6% fall in its net profit in the third quarter of the year compared to the recorded profit in the same period in 2019. In the third quarter of 2019, Aramco recorded a net profit of 79.84 billion riyals. However, this reduced drastically to 44.21 billion riyals approximately $11.8 billion in the current quarter of the year.
In the second quarter of the year, the recorded net profit was around 24.75 billion riyals after the market experienced its worst crash. Interestingly, the figure recorded in the third quarter is not much a deviation from the predicted recovery net profit estimated by experts.
The COVID-19 caused the crude oil prices to drop to an unimaginable position forcing almost all oil producers including Saudi Aramco to respond by cutting capital expenditures. A planned project of crude-oil-to-chemicals with the Saudi Basic Industries Corporation worth $20 billion was put on hold or reevaluated. The same thing with Capex which was around $6.4 billion in the period under review as well as other projects.
According to Neil Beveridge, senior oil and gas analyst at Bernstein, Saudi Aramco is exploring all possible avenues to lower cost as they improve on efficiency without necessarily increasing Capex. He stated emphatically that putting Capex on hold is the best thing to do. His reason was that a lot of Capex expansion plans envisaged had to do with raising capacity. As claimed by him, that required capacity is not needed in the market today. Aramco is working around the clock to reduce the capital expenditure which was around $32.7 billion in 2019 to be within the range of $25 billion to $30 billion in 2020.
Performance of Saudi Aramco amid the Coronavirus Pandemic
Saudi Aramco revealed that they recorded a lower volume sold coupled with weaker refining and chemical margin in addition to the recorded lower crude prices. The royalty rate was affected having slipped from 20% to 15% establishing a decrease in the oil production royalties. The Islamic taxes (Zakat) and the lower income taxes were not left from the all-around impact of the global pandemic.
Saudi Aramco is reported to have maintained its $18.75 billion dividends in the third quarter of the year which has been said to be paid in the next quarter. The same process was adopted from the start of the year as its dividend for the first quarter was paid in the second quarter, and the second quarter dividend was pushed to be paid in the third quarter. Beveridge said that the company has maintained a very strong commitment to its shareholders in terms of dividends. The company’s commitment to its shareholders was much linked to the 1.5% shares listed on Saudi Tadawul which has affected its priority.
Excellent John K. Kumi is a cryptocurrency and fintech enthusiast, operations manager of a fintech platform, writer, researcher, and a huge fan of creative writing. With an Economics background, he finds much interest in the invisible factors that causes price change in anything measured with valuation. He has been in the crypto/blockchain space in the last five (5) years. He mostly watches football highlights and movies in his free time.