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Aramco reported a net profit of $11.8 billion for the third quarter of 2020, down by 44.6 percent on the year as low oil prices continued to bite into its financial performance.
The company also said it had free cash flow of $12.4 billion at the end of the three-month period and declared a dividend of $18.75 billion for the quarter.
For the first nine months of the year, the hit from low oil prices and depressed demand was stronger. Net profit was down by close to 49 percent to $35.015 billion.
In oil production, the Saudi major reported an average daily of 9.2 million bpd for the first nine months of the year as it continued capping output in compliance with the OPEC+ agreement.
Earlier this year, Aramco declared an annual dividend of $75 billion. That amount, however, will not be sufficient to cover the Saudi budget deficit, Moody’s said in a report last month. Now, with oil prices still low and likely to go lower still if the surge in Covid-19 cases continues in Europe and the United States, Aramco’s earnings will take a bigger hit.
This means that the government in Riyadh will not be able to plug the budget hole with the Aramco dividend as it has done previously.
“The government is unlikely to be able to repeat the maneuver beyond 2021,” Moody’s said in the report. Aramco will have its own capital expenditure needs and its commitment to buy petrochemicals giant SABIC to look after, according to the ratings agency.
Despite the challenging environment, Aramco expects that oil supply will tighten over the next year as demand recovers to pre-pandemic levels. China is seen as the source of most of the rebound, supported by other Asian countries.
For the immediate future, however, Aramco is much less bullish. The company said last week that oil demand was currently too weak for OPEC+ to go ahead with its plan to relax production cuts by another 2 million bpd from next January.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com
Saudi Aramco isn’t like other oil majors. If it was, it wouldn’t declare a dividend of $18.75 bn for the third quarter when it only had a free cash flow of $12.4 bn. But then the Saudi government which owns Aramco is the major shareholder to the tune of 98% and it depends on the dividends to plug its budget deficit.
Saudi budget deficit in 2020 could be expected to exceed $116 bn.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Now everyone knows the entire Kingdom is bankrupt and by exactly how and exactly how much.