Notes From All Over -- Saudi Aramco Update -- August 11, 2020

Before we get started. The price of gasoline in north Texas is about $1.85 / gallon, unleaded, least expensive. At our neighborhood service station, $1.64/gallon. 

 

Now back to the Saudi Aramco story.

 

I linked this article last week but it was behind a paywall, though, for some reason, it showed up on my iPad. Whatever. I tried to get to it this evening, but was stopped by the paywall. Then I googled the headline ("Saudi Aramco sticks to dividend pledge despite plunge in earnings") and it popped up on both the laptop and the iPad.

I find Saudi Arabia and the Saudi Aramco story fascinating. 

Saudi Aramco will pay $75 billion in demands this year despite the fact that their earnings probably don't cover the payout. But, to get the IPO approved by the king, the prince had to promise that the $75 billion dividend would be paid regardless of how well the oil company did. 

Look at this: in the most recent quarter, Saudi Aramco reported a net income of $6.6 billion, a 73% fall from the same period a year ago. So, three data points:

• $6.6 billion net income in 2Q20;
• a 73% fall in net income compared to a year earlier;
• dividend payout: $75/4 = almost $20 billion -- well beyond the $7 billion in net income

And there's nothing to suggest the oil company will do any better in the next four quarters. Everyone says it is so incredibly cheap to drill for oil in Saudi Arabia as it is, which suggests to me that the company can't cut much more in expenses to improve their bottom line. 

It is true that the price of Brent has increased from $20 earlier this year to $40 and China is importing a lot more oil. But again: $7 billion in income in 2Q20, and the company needs almost $20 million to simply cover the dividend. From the article: 

Despite the uncertainty surrounding the global economy, Saudi Aramco said it would maintain the world's biggest quarterly dividend at $18.75 billion, most of it intended for the government in Riyadh, in line with its pledge for an annual $75 billion payout. 

The shareholder handout is far bigger than free cash flow for the period of $6.1 billion, which is down from $20.6 billion a year ago. 

But then this strange statement:

Mr Nasser told reporters that "our intention is to pay $75 billion, subject to board approval and depending on market conditions." Minority (i.e., non-government stockholders) shareholders, who own 1.5 percent of the company, will be "protected" for the next five years and given priority payments.

A new term for me: gearing ratio:

The company's gearing ratio -- a measure of financial leverage -- has already jumped to 20.1 percent, from minus 4.9 percent in the previous quarter. Saudi Aramco said this was related to the June acquisition of a majority stake in chemicals company Sabic from the Public Investment Fund, Saudi Arabia's sovereign wealth fund, for $69 billion. 

Saudi Aramco had expected the gearing to go up because of the deal, but the level far exceeded the company's longer-term target of 5 percent to 15 percent. 

Further, the government has already been forced to raise the kingdom's debt ceiling from 30 per cent of gross domestic product to 50 per cent, and Riyadh has borrowed more than $20 billlion on local and international markets this year.

I will quit there.

The article is worth a read. 

It's very possible that within my lifetime I will see the end of the House of Saud.

 

That's the number one reason I remain bullish on oil; the House of Saud will do what it takes to survive. 

And if you don't understand "gearing ratio," this is a great time to learn. Start here: Investopedia.

A higher gearing ratio indicate that a company has a higher degree of financial leverage and is more susceptible to downturns in the economy and the business cycle. This is because companies that have higher leverage have higher amounts of debt compared to shareholders' equity. Entities with a high gearing ratio have higher amounts of debt to service, while companies with lower gearing ratio calculations have more equity to rely on for financing.

The Recipe Page
I'm not sure if this beats salmon grilled on the Weber, but since I did not have a Weber but wanted salmon for dinner, I decided to give it a try. My notes to my wife in Portland, OR, who loves salmon:

On the drive home from Montana/Portland, I happened to catch a very, very interesting program on talk radio about bees and honey.

As part of the program, they talked about baking/grilling salmon with honey.

I tried this recipe.

https://cafedelites.com/browned-butter-honey-garlic-salmon/

I don't know if I would recommend it or not, but I found the crispiness very delicious and will do it again.

But warning: be sure not to over cook the salmon.

It does not say how long to cook on stove top. I was watching it very, very closely and made sure I kept spooning the butter/honey on the salmon and limited stove top to about five minutes.

Then the directions said 5 - 6 minutes in oven/broiler. I probably had it in the broiler/oven for four minutes and that was almost too long.

Anyway, I loved it and will do it again. Incredibly simple. It seems like it was done before I even started.

And, of course, you have to have a skillet that can go directly from stove top to oven.

Clean-up was very, very easy. I used a non-stick oven-ready skillet. By the time I got back to the skillet, the honey/butter residue was almost impossible to remove from the skillet. I put it back on the oven top, heated it up very carefully, and then, with a wooden spatula, the honey/butter residue was removed without any trouble.