Unlike Aramco, rivals such as BP plc and Royal Dutch Shell plc have cut their dividends

DUBAI • Saudi Arabia’s state-controlled oil giant pressed ahead with a plan to pay US$75 billion (RM314.25 billion) in dividends this year despite crashing profit and a surge in debt, as the kingdom battles a widening budget deficit.

Saudi Arabian Oil Co (Aramco) said net income for the three months ending in June fell to 24.6 billion riyals (RM27.65 billion), down 73% from a year earlier, after crude prices collapsed. Aramco will pay a dividend of US$18.75 billion for the quarter, most of it to the government, which owns around 98% of the company’s stock.

According to CEO Amin Nasser (picture), Aramco’s performance and demand for energy will probably improve over the rest of the year as nations ease coronavirus lockdowns.

“We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies,” he said.

The results cap a turbulent period for the world’s biggest oil exporter. Prices briefly turned negative in the US in April as the virus battered the global economy and Aramco slashed hundreds of jobs.

Saudi Arabia and Russia led a push by the OPEC+ to reduce production and prop up crude prices. Although they have rallied, Brent is still down 33% this year.

Unlike Aramco, rivals such as BP plc and Royal Dutch Shell plc have cut their dividends.

“We are committed to delivering sustainable dividends through market cycles, as we have demonstrated this quarter,” Nasser said. “Our intention is to pay US$75 billion, subject to board approval, of course, and market conditions.”

Saudi Arabia generates most of its revenue from crude, and its budget deficit is set to exceed 12% of GDP in 2020, according to the International Monetary Fund. That would be the widest since 2016, adding pressure on Aramco to maintain dividend payments.

The shares of Aramco, which Apple Inc dethroned last month as the world’s most valuable listed company, rose 0.3% to 33.05 riyals as of 3pm in Riyadh yesterday. They have declined 6.2% this year, much less than the likes of Exxon Mobil Corp, which has fallen 38%, and Shell (50%).

The outlook for Aramco will remain uncertain for “some time”, Nasser said. Still, he expressed confidence about the company’s business and strategy in the third quarter (3Q) and said oil consumption in Asia, Aram- co’s largest regional market, has almost returned to pre-coronavirus levels.

The Dhahran-based firm’s gearing ratio soared to 20.1% at the end of June from minus 5% in March. That was due largely to the debt Aramco took on when it bought chemicals company Saudi Basic Industries Corp for US$70 billion. The deal was funded by a loan from the Saudi Arabia’s sovereign wealth fund, which Aramco plans to finish repaying in 2028.

Aramco has yet to draw down a US$10 billion revolving credit facility, according to Nasser. The company said in June that it might issue more bonds or loans to meet its dividend commitment.

Capital expenditure will be at the lower end of the US$25 billion to US$30 billion range set in March, it said. That is already down from the company’s plan at the start of 2020 to spend between US$35 billion and US$40 billion.

Aramco is still working on a deal to buy a US$15 billion stake in Reliance Industries Ltd’s refining and chemicals business, Nasser said, without giving any detail on timing. The Indian firm’s chairperson Mukesh Ambani said in July that a transaction has been delayed.

Aramco’s Fadhili natural-gas plant reached full production capacity of 2.5 billion standard cu ft during the 2Q. The company is boosting gas output to feed local businesses and replace valuable crude that power plants burn to meet rising demand for air-conditioning during the summer. Aramco started the Fadhili gas plant last year and has gradually ramped up output. — Bloomberg