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Saudi Aramco's internet revenue falls 45% in third quarter as a result of weak oil demand

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Oil tanks at an oil processing plant owned by Saudi Aramco, a Saudi Arabian state oil and gas company, in the Abqaiq oil field.

Stanislav Krasilnikov | TASS via Getty Images

DUBAI, United Arab Emirates – Saudi Aramco's net income declined 44.6% in the third quarter of 2020 compared to the same period last year. This is due to the ongoing damage to oil demand and prices from the global coronavirus pandemic.

Net income for the quarter declined from 79.84 billion riyals in the third quarter of 2019 to 44.21 billion riyals ($ 11.8 billion).

The figure is in line with analysts' estimates and shows a rebound from the historic second quarter revenue decline, which saw profits drop to 24.75 billion riyals.

The Saudi Kingdom's state-owned oil company saw lower crude oil prices and sales, as well as weaker refining and chemical margins, the company said in its press release on Tuesday. There was also a drop in oil production royalties, a drop in royalties from 20% to 15%, and lower income taxes and zakat (Islamic taxes).

The national producer has kept its dividend of $ 18.75 billion for the third quarter, which is set to pay out in the fourth quarter. The dividend for the second quarter was set at the same level in August and was also paid out in the following quarter. Aramco's dividend for the first quarter was paid in the second quarter.

Aramco listed 1.5% of its shares locally on the Saudi Tadawul last year. According to analysts, this has changed many of the company's priorities, including its commitment to shareholders.

"Aramco made a very strong dividend commitment to shareholders in its initial public offering," Neil Beveridge, senior oil and gas analyst at Bernstein, told CNBC's Capital Connection on Tuesday.

"And that was really a cornerstone that I think for any investor who has invested in Saudi Aramco, and that is something that … the company wants to keep up, as it made a commitment when it went public."

The share price of Aramco on the Saudi Tadawul rose within an hour of the opening of the stock exchange by almost 1% to 34.50 rials per share. Brent crude was trading at $ 39.55 a barrel after falling dramatically earlier this week as several European countries returned to lockdowns amid rising coronavirus cases. The international oil benchmark has fallen by more than 36% since the beginning of the year.

Like virtually all oil producers, the company announced significant cuts in capital spending as crude oil prices collapsed with the outbreak of the pandemic. Capital expenditures for the third quarter were $ 6.4 billion. Projects including a proposed $ 20 billion crude oil chemistry project that suspended or "revalued" Saudi Basic Industries Corporation (SABIC).

Investment cuts are "prudent"

The downstream market has been particularly hard hit as Aramco's recent investments in the petrochemicals business have turned out to be more of a liability than an asset thanks to the pandemic, Beveridge said.

"We have seen all-time lows in refining margins since the third quarter. And of course there is no good news for Aramco when it comes to refining and petrochemicals after the completion of the SABIC acquisition."

"Aramco is doing everything we can to improve efficiency and reduce costs, but that does not necessarily mean increasing investments," added Beveridge. "Keep in mind that much of the planned investment expansion plan was to increase capacity and that capacity is simply not needed in the market right now. So I think capital cuts are the prudent thing to do."

The company expects capital expenditures in 2020 to be on the lower end of the $ 25-30 billion range compared to $ 32.7 billion in 2019. "Aramco continues to implement investment optimization and efficiency programs to react to the current business environment, "it said in its earnings release on Tuesday.

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Katherine Clark