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Saudi Aramco's web revenue falls 45% in third quarter resulting from 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."

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).

"Aramco is doing everything we can to improve efficiency and reduce costs, but that does not necessarily mean increasing investments," said 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."

Aramco expects capital spending for 2020 to be on the lower end of the $ 25-30 billion range, compared to $ 32.7 billion for 2019.

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Steven Gregory