RIYADH - Energy giant Saudi Aramco said on Sunday its second-quarter profits plunged a massive 73 percent due to sharply lower oil prices as the coronavirus crisis undercuts global demand.
The behemoth, recently dethroned by Apple as the world's most valuable listed company, posted a net profit of $6.6 billion for the three months to June 30 compared to $24.7 billion for the same period of 2019.
The results are in line with analysts' expectations but stand in contrast to the losses reported by its rival energy giants, which are reeling from a drop in oil demand since the start of the novel coronavirus pandemic.
"Strong headwinds from reduced demand and lower oil prices are reflected in our second quarter results," Aramco's chief executive Amin Nasser said in a statement.
"Yet we delivered solid earnings because of our low production costs, unique scale, agile workforce and unrivalled financial and operational strength."
Aramco's net profit for the first half of the year also slumped by 50.5 percent to $23.2 billion, compared to $46.9 billion in the same period last year.
The results underscore a downbeat oil market as pandemic-driven economic shutdowns crush the global demand for crude.
Five other leading oil firms -- BP, Chevron, ExxonMobil, Royal Dutch Shell and Total -- recently reported combined losses of $53 billion for the second quarter.
By contrast, Aramco's results reflected its "financial resilience", Nasser said, as the company presses ahead with a plan to pay $75 billion in dividends this year.
Nasser also voiced optimism over what he called a "partial recovery in the energy market" amid an easing of virus restrictions in some countries.
But amid low crude prices, Aramco is looking at cutting its 2021 budget by between eight and 10 percent from this year's already reduced levels, the Energy Intelligence group reported last month.
Aramco has said it expects capital expenditure to be at the "lower end of the $25 billion to $30 billion range" this year.
That is significantly lower than its expenditure of $32.8 billion in 2019, according to Energy Intelligence.
"Cutbacks have already caused Aramco to delay plans to expand production from its offshore fields," Energy Intelligence said in a report.
"The offshore program was a core element of a push to raise the company's oil production capacity."
The company has also slashed hundreds of jobs as it seeks to reduce costs, Bloomberg News reported in June.
Saudi Arabia, the world's biggest crude oil exporter, has been hit hard by the double whammy of low prices and sharp cuts in production.
A sharp drop in oil income is expected to hinder Crown Prince Mohammed bin Salman's ambitious plans to overhaul the kingdom's energy-reliant economy.
Oil prices dropped to a two-decade low below $20 a barrel in April and May as the coronavirus dampened demand, before recovering to around $44 a barrel after the OPEC+ producers agreed to record output cuts.
Following the move, Saudi oil production dropped to 7.5 million barrels per day in June, compared to last year's average of 10 million bpd.
Aramco's profits were also impacted by the losses posted by the Saudi Basic Industries Co. (SABIC), the petrochemicals giant it acquired for $69 billion in a deal completed this year.
The energy giant is bracing for a possible further wave of coronavirus infections that could impact a tentative global economic recovery and erode the demand for crude worldwide, analysts say.
Aramco was listed on the Saudi bourse in December following the world's biggest IPO, generating $29.4 billion for 1.7 percent of its shares.
US technology firm Apple last week replaced it as the world's most valuable company after its capitalisation grew to $1.9 trillion, compared to $1.76 trillion for Aramco.
Nasser said Aramco would distribute $18.75 billion in dividends for the second quarter to keep its listing promise of distributing at least $75 billion in annual dividends for five years.
"We are committed to delivering sustainable dividends through market cycles, as we have demonstrated this quarter," Nasser said in a media call, according to Bloomberg News.
"Our intention is to pay $75 billion, subject to board approval, of course, and market conditions."
Agence France-Presse
SINGAPORE -- Singapore tycoon O.K. Lim built up his oil empire from a single-truck outfit through hard work and high-risk gambles, a rags-to-riches tale that made him a legend among crude traders.
But it all came crashing down when oil markets were plunged into unprecedented turmoil by the coronavirus pandemic and revealed the keen poker player appeared to have overplayed his hand.
Lim -- who projected a down-to-earth image but was, according to people who knew him, a "major risk-taker" -- dashed to court seeking protection from creditors for his firm Hin Leong Trading last month.
In a bombshell affidavit seen by AFP, Lim revealed the oil trader had "in truth... not been making profits in the last few years" -- despite having officially reported a healthy profit in 2019.
He admitted the firm he founded in the 1960s after emigrating from China had hidden $800 million in losses over the years, while it also owes almost $4 billion to banks.
Lim took responsibility for ordering the company, one of Asia's biggest oil traders, not to report the losses and also confessed it had sold off inventories that were supposed to backstop loans.
Hin Leong -- meaning "prosperity" in Chinese -- is one of the biggest industry casualties yet of the crude market collapse, and its demise last month marks an ignominious fall from grace for Lim.
'Major risk-taker'
The businessman -- whose full name is Lim Oon Kuin -- started the company with a single delivery truck shortly before Singapore became independent in 1965.
It grew into a major supplier of fuel used by ships, and its rise in some ways mirrored Singapore's growth from a gritty port to an affluent financial hub.
The firm played a key role in helping the city-state become the world's top ship refuelling port, observers say, and it expanded into ship chartering and management with a subsidiary that has a fleet of more than 150 vessels.
The picture that emerges of Lim himself, now in his 70s, is complex.
On one hand, he was a low-profile individual who sought to project a humble image -- you would not know he was a wealthy tycoon if you saw him walking down the street, according to those who knew him.
But he maintained a firm grip on Hin Leong, with one oil trader in Singapore -- who spoke anonymously -- describing him as a "typical Asian patriarch making all the decisions for the family business".
Jorge Montepeque, a veteran crude market executive who did business with Lim for a decade until 2001, said the Hin Leong founder could appear "almost detached" in meetings, as if unaware of what was happening.
"But that's not true, he very much knows what is going on... The reality is that he has been a major risk-taker," he told AFP.
'Too big to fail'
The firm's collapse has prompted a police investigation and sent shockwaves through the financial community, with a government agency offering assurances that the city-state's "oil-trading sector remains resilient".
The Singapore oil trade told AFP: "Nobody appeared to have thought that anything was amiss.
"The sentiment was that Hin Leong was too big to fail."
But it appears that taking risks and failing to hedge against a downturn came back to bite Hin Leong when it was hit by a double blow -- a Saudi-Russia price war and a virus-triggered demand shock.
Global oil demand has collapsed by around a third, according to some estimates, as the virus pandemic brings economic activity to a standstill.
A slide presentation made by Hin Leong for creditors before it went to court showed the company had total liabilities of $4.05 billion against assets of $714 million.
Bank debts of $3.85 billion comprised the lion's share of its liabilities -- with large sums owed to lenders including HSBC, Dutch bank ABN Amro and France's Societe Generale.
"What caught many by surprise was that they didn't have the cash. I mean, these guys were big," the oil trader said.
Hin Leong did not respond to requests to comment from AFP.
Lim has stepped down from his positions as director and managing director, although Hin Leong's final fate is still uncertain at this stage.
Observers say that the firm had likely hoped China would contain the virus and the oil market turmoil would be short-lived.
But such a strategy, said oil executive Montepeque, was like "taking all your assets and putting them all on the red on the casino roulette".
And after reading Lim's confessions, Montepeque said he believed the "game was up" for Hin Leong.
Agence France-Presse
