As a result of pandemic woes and challenging market conditions in the energy sector, Saudi Aramco’s profit dropped 50% during the first half of 2020. According to the research data analyzed and published by Stock Apps, the company’s net income for the period amounted to $23.2 billion. In contrast, during the corresponding period in 2019, net income totaled $46.9 billion.
During the second quarter of 2020, the company recorded a net income of $6.6 billion. Comparatively, in Q2 2019, net income was almost four times that amount, at $24.7 billion. The drop in quarterly earnings was a massive 73%. Total free cash flow fell from $38 billion in H1 2019 to $20.6 billion in H1 2020 and from $20.6 billion in Q2 2019 to $6.1 billion in Q2 2020.
Saudi Aramco’s performance is a reflection of the devastating year that oil markets have had in 2020. Brent crude oil prices started the year at $68.44 while the OPEC basket was priced at $68.89 and WTI at $61.68 according to the Organization of the Petroleum Exporting Countries (OPEC).
As of March 30, 2020, Brent had dropped to a low of $22.76, OPEC to $21.66 and WTI to $20.09 and further down to $20.46, $12.41 and $14.22 respectively on April 28. Though there has been a significant improvement since then, prices are still considerably low.
Based on the US Energy Information Administration (EIA), Brent crude oil prices averaged $41 per barrel in September 2020. Compared to the August average, there was a $4 per barrel decline.
The 2020 average for Brent is $41.19 and $38.76 for WTI. In contrast, the 2019 average for Brent was $64.34 and $56.99 for WTI. The decline in price had to do with a drop in demand resulting from lockdowns and restrictions in travel.
Industry experts project that it could take up to 2022 for the industry to experience complete recovery in terms of demand. The EIA predicts a 2021 average of $47.07 for Brent and $44.72 for WTI.
Aramco Pays $37.5 Billion Dividends in H1 2020
Considering that the Saudi government has a more than 98% stake in Saudi Aramco, it takes most of the dividend money. During the run-up to its initial public offering, Aramco got into a commitment to pay $75 billion a year in dividends.
In spite of the prevailing circumstances, Saudi Aramco declared an $18.75 billion dividend for its shareholders during Q2 2020. During the corresponding quarter in 2019, it had paid out $13.4 billion as dividends.
For the first six months of 2020, it paid a total of $37.5 billion in dividends as rivals BP, Eni Spa and Royal Dutch Shell cut theirs.
The dividend payment for Q2 2020 was almost three times the company’s cash flow and for H1 2020, it almost doubled the cash flow. According to an analysis published by Bloomberg, the cash flow is not likely to meet the oil giant’s dividend target until 2024.
Despite its 73% Q2 profit decline, Aramco was one of the best performers in the oil sector. BP suffered a $6.7 billion loss while Exxon Mobil Corp.’s loss was $1.1 billion.
Aramco First Publicly Traded Company to Reach $2 Trillion Market Cap
The Saudi Arabian oil giant is not only the world’s largest crude oil producer, but it also happens to be the largest company globally by market capitalization in 2020. According to data published by Forbes, it had a market capitalization of $1.685 trillion as of May 2020.
Microsoft was in second place with $1.359 trillion while Apple was third with $1.285. In fourth place was Amazon with $1.233 trillion while Google’s Alphabet Inc. was fifth with $919.3 billion.
Saudi Aramco was one of three companies that are not US-based on the list of top 10 companies globally by market cap. The other two are from China, Alibaba in 7th spot with $545.4 billion and Tencent Holdings in 8th with $509.7 billion.
Moreover, Saudi Aramco ranks fifth on the list of best performing companies in 2020. According to CEO World, the top performer globally was the Industrial & Commercial Bank of China as of May 2020. China Construction Bank was second, JP Morgan Chase third and Berkshire Hathaway fourth. Aramco tied for the fifth spot with the Agricultural Bank of China.
A day after its successful IPO in December 2019, Aramco became the first publicly listed company to reach a $2 trillion market cap. It is noteworthy too that for a time, it lost its title to Apple as a result of a massive rally in US stocks, particularly in the tech sector.
In mid-August 2020, Apple hit a $2 trillion market cap, becoming the first US-listed company to do so. However, following a tech stock sell-off at the beginning of September, Aramco was able to gain back the crown.