Analysts had expected Aramco, which went public last year, to maintain payouts to minority shareholders while cutting the dividend to the Saudi government, whose finances have been battered by plunging oil prices amid the coronavirus pandemic.

Brent crude prices fell 65.6% in the first quarter, before OPEC+ producers agreed to cut oil supply by a record 9.7 million barrel per day from May to help shore up prices and curb oversupply. [O/R]

Despite the drop in profit, the state oil giant's cashflow remained strong compared to other oil majors, reflecting its strong balance sheet and resilience. tmsnrt.rs/2LjZQ4D

Shares of Aramco were up 1.3% at 31.30 riyals at 0825 GMT, still trading below the IPO price of 32 riyals. Aramco’s net profit fell to 62.48 billion riyals ($16.64 billion) after zakat and tax for the quarter to March 31 from 83.29 billion riyals a year earlier, below estimates by analysts who expected a profit of $17.8 billion.

Aramco said total dividends of $13.4 billion were paid for the fourth quarter of 2019 and that it would distribute a dividend of $18.75 billion for the first quarter of this year. This is in line with its plan to pay a base dividend of $75 billion for 2020.

The Q1 dividends “are the highest of any listed company worldwide” and will be paid in the second quarter, Aramco said.

It did not make any announcement on its future dividend policy, however. [nL8N2CT5JA]

Yousef Husseini, an analyst EFG Hermes, said though there was no change to the dividend policy in the first quarter, he still expects the share of the dividend paid to the government, which remains the biggest shareholder, will be reduced.

“They will cut the share of the government in the second quarter but there is some upside if they renegotiate the SABIC deal which could save them some cashflow,” he said.

Aramco said earlier on Tuesday that its planned acquisition of a 70% equity stake in Saudi petrochemical maker SABIC is on track to close in the second quarter. Sources told Reuters this week that the $70 billion deal was likely to be restructured.

SUPPLY CUT PACT

Aramco’s cash flows from operating activities, stood at $22.4 billion in the first quarter, compared to $24.5 billion in the same period of 2019, the company said. It said free cash flow was $15 billion, compared to $17.4 billion in Q1 2019.

In comparison Royal Dutch Shell reported cash flows of just below $15 billion in the first quarter of this year, the highest among the Western oil majors.

Aramco had kept its oil output at around 9.8 million barrels per day during the first three months of the year under the OPEC+ supply cut pact, before opening the oil taps in April after the collapse of earlier supply cut talks in early March.

On Monday, Saudi Arabia said it would deepen output cuts in June beyond its quota under the latest OPEC+ deal to help drain a supply glut, prompting a rise in crude prices.

“On the balance sheet, Aramco continues to maintain its strength despite the reduction in oil prices,” said Mazen Alsudairi, head of research at Al Rajhi Capital in Riyadh.

Aramco said its results reflected lower oil prices, declining refining and chemicals margins and “inventory re-measurement losses”.

“Looking ahead to the remainder of 2020, we expect the impact of the COVID-19 pandemic on global energy demand and oil prices to weigh on our earnings,” Aramco’s CEO Amin Nasser said.

“We continue to reinforce the business during this period by reducing our capex and driving operational excellence. Longer term we remain confident that demand for energy will rebound as global economies recover.”

Aramco said it continues to expect capital spending for 2020 to be between $25 billion and $30 billion. Capital expenditures for 2021 and beyond remain under review. Capital expenditures in the first quarter were $7.4 billion, compared to $7.2 billion for the same period in 2019, Aramco said.

Aramco’s gearing - net debt divided by balance sheet capital - was minus 4.9% at end March, down from minus 0.2% at the end of 2019, reflecting the strength of the company’s balance sheet.