Oil Production

Saudi Arabia Stops Supply Of Oil To Pakistan, Saudi Aramco Profit Drops 50 Percent

The biggest oil producer of the world Saudi Arabia has stopped supply of oil to Pakistan as a deal signed between the two close allies for provision of $3.2 billion worth of the fuel under the arrangement expired two months ago.

Pakistan has not received oil on deferred payments from Saudi since May and the latter is yet to renew an agreement with Pakistan.

The USD 3.2 billion Saudi oil facility was part of the USD 6.2-billion Saudi Arabian package announced in November 2018 to ease Pakistan’s external sector woes, the Express Tribune reported on Friday.
The agreement expired in May and efforts are underway to renew the facility, Petroleum Division spokesperson Sajid Qazi was quoted as saying by the paper.
Pakistan is awaiting a response from the Saudi government over its request to further extend the facility, he added.

“Pakistan has already prematurely returned $1 billion Saudi loan – four months ahead of its repayment period. Pakistan could also return $2 billion remaining Saudi cash loan, subject to availability of similar facility from China.

The agreement over $3 billion cash support and $3.2 billion oil facility per annum had the provision of renewal for two more years…Saudi Arabia has not provided the oil on deferred payments since May this year,” according to The Express Tribune.

The budget estimates suggested that the Pakistan government was hoping to receive minimum $1 billion worth of oil in the fiscal year 2020-21, which started in July.

A Pak oil ministry spokesman said that the response from the Saudi Arabian government was awaited over Pakistan’s request to further extend the facility, in line with the provision of the agreement.

The development comes at a time when Pakistan faces a challenging situation as its IMF programme also remains technically suspended for the last five months.

Saudi had rolled over its USD 3 billion loan from between November 2019 and January 2020. The International Monetary Fund (IMF) has termed the rollovers of Saudi Arabian, United Arab Emirates (UAE) and Chinese assistance critical for Pakistan’s debt sustainability.

Pakistan’s repayment of USD 1 billion Saudi Arabian loans after borrowing from China and expiry of the oil facility underscores challenging relations between two Islamic nations, the report noted.

Saudi Aramco profit drops as pandemic batters oil price

Oil giant Saudi Aramco reported a 50% fall in net income for the first half of its financial year, reflecting a devastating year for oil markets and the global economy at large as the world continues to battle the coronavirus pandemic. 

In a release published Sunday, the company said net income plunged to $23.2 billion in the first six months of the year, down by half from $46.9 billion over the same period in 2019.

Saudi Arabia’s majority state-owned oil company and the world’s largest crude producer also maintained its second-quarter dividend of $18.75 billion, saying it will be paid in the third quarter. Its first-quarter dividend of the same amount was paid in the second quarter.

Total free cash flow at the company came in at $21.1 billion for the first half, down from $38 billion the year before.

The financial results for the second quarter reflect the biggest shock to global energy markets in decades.

“Strong headwinds from reduced demand and lower oil prices are reflected in our second quarter results,” Aramco President and CEO Amin Nasser said in the release.

It was the first earnings press conference Saudi Aramco executives have held since the company went public in December, suggesting maturation in efforts to build transparency at one of the world’s biggest businesses.

Aramco said the result was hit by lower crude oil prices and declining refining and chemicals margins, owing to a historic halt in global economic activity and oil and product demand due to the coronavirus. 

“The worst is likely behind us,” Nasser told the earnings call. “We remain fairly positive about the long term demand for oil.” Prices flipped into negative territory in April, and while the market has stabilized, Brent crude oil prices are still down more than 30 percent this year.

The latest earnings numbers come just a week after Aramco ceded its title as the world’s largest listed company by market capitalization to Apple. Shares were largely unmoved on the news, trading up by 0.29% Sunday morning local time. 

Dividend payout intact, but capital expenditure on watch

Despite continued global economic disruption and challenges facing the energy sector, Aramco declared a dividend of $18.75 billion for the second quarter, compared to $13.4 billion for the second quarter of 2019.  

“This demonstrates Aramco’s agility, strength, and resilience across market cycles,” Nasser added, defying analysts by maintaining the payout amid renewed suggestions that it could be scaled back. Rivals BP and Royal Dutch Shell have already slashed dividends amid the pandemic.

“Our intention is to pay $75 billion dollars, subject to board approval and depending on market conditions,” Nasser said. “We have a strong balance sheet and we have a lot of flexible capital on our hands,” he added.

Big oil is getting a big makeover

Big oil is combating historic market and operational challenges. The coronavirus has caused the biggest shock to global energy markets in decades, but executives at Aramco are optimistic on the recovery trajectory in the third quarter and beyond. 

“We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies,” Nasser added, but warned that the fall in energy demand sparked by the coronavirus would weigh on its full year earnings.

Some U.S and European firms have been forced to dramatically cut the value of oil assets and rethink price assumptions to combat a troubled global economy and shifting investor expectations. Smaller firms within the US shale industry have gone bust, weighed down by crippling debts and unable to stay viable in the current price environment. 

Despite the concerns, analysts said Aramco was better prepared to weather market volatility, owing to its size and scale, its low cost of production and solid free cash flow generation in a weak oil price environment. 

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