Oil giant Saudi Aramco left its dividend unchanged at US$18.75bn even as it failed to generate enough cash to cover the payout and reported a 45% drop in third-quarter profit.
The world’s biggest oil company generated free cash flow of $12.4 billion between July and September, down from $20.6 billion a year earlier as coronavirus lockdowns hit demand for energy and refining margins.
The company’s dividends are a vital source of cash for the Saudi Arabian government, whose budget deficit is expected to widen to 12% of gross domestic product in 2020 amid a severe economic contraction.
Aramco’s net income at the world’s biggest oil company was 44.2 billion riyals (US$11.8bil), broadly in line with analysts’ expectations. Sales fell 25% from the same period of 2019 to US$53.3bil.
The state energy firm’s free cash flow was US$12.4bil between July and September, compared with US$20.6bil a year earlier.
Gearing climbed to 21.8% from 20% in June and from minus 5% in March, when Aramco had more cash than debt.
Aramco’s shares rose 0.6% to 34.40 riyals in early trading in Riyadh, paring this year’s drop to 2.4%.
The stock has been bolstered by management’s insistence that it will pay a US$75bil dividend in 2020, almost all of which will go to the Saudi Arabian government.
Income still increased for the first time in five quarters, as oil prices steadied following their battering earlier in the year as the coronavirus spread globally and demand for energy cratered.
Chief executive officer Amin Nasser said “We saw early signs of a recovery in the third quarter due to improved economic activity, despite the headwinds facing global energy markets,”.
“We continue to adopt a disciplined and flexible approach to capital allocation in the face of market volatility.”
Although the results suggest the worst of the pandemic’s impact on energy demand may have passed, Aramco still faces a brittle market.
Oil prices fell to a five-month low this week amid fresh travel restrictions in Europe aimed at stemming a surge in virus cases.
Saudi Arabia and other members of the OPEC+ alliance of producers — who agreed to slash crude exports in April — are weighing whether to delay an easing of those curbs as a way of buttressing prices.