Saudi Arabian Oil : non-IFRS measures reconciliation and definitions

1 Saudi Arabian Oil Company

Third quarter and nine months 2020

All amounts in millions unless otherwise stated

Non-IFRS measures reconciliations and definitions

Aramco uses certain non-IFRS financial measures - ROACE, free cash flow, gearing and EBIT - in the analysis of its business and financial position.

These non-IFRS financial measures have been included below to facilitate a better understanding of Aramco's historical trends of operation and financial position.

Aramco uses non-IFRS financial measures as supplementary information to its IFRS based operating performance and financial position. The non-IFRS financial measures are not defined by, or presented in accordance with, IFRS. The non-IFRS financial measures are not measurements of Aramco's operating performance or liquidity under IFRS and should not be used instead of, or considered as alternatives to, any measures of performance or liquidity under IFRS. The non-IFRS financial measures relate to the third quarter and nine month periods and are not intended to be predictive of future results. In addition, other companies, including those in Aramco's industry, may calculate similarly titled non-IFRS financial measures differently from Aramco. Because companies do not necessarily calculate these non-IFRS financial measures in the same manner, Aramco's presentation of such non-IFRS financial measures may not be comparable to other similarly titled non-IFRS financial measures used by other companies.

ROACE

ROACE measures the efficiency of Aramco's utilization of capital. Aramco defines ROACE as net income before finance costs, net of income taxes and zakat, for a period as a percentage of average capital employed during that period. Average capital employed is the average of total borrowings plus total equity at the beginning and end of the applicable period. Aramco utilizes ROACE to evaluate management's performance and demonstrate to its shareholders that capital has been used effectively.

ROACE for the third quarter and nine months ended September 30, 2020, calculated on a twelve-month rolling basis, was 14.8% compared to 31.5% for the same periods in 2019. This decrease was primarily attributable to lower net income, and to a lesser extent, higher borrowings as a result of the SABIC acquisition.

	SAR			USD*
	Twelve months ended		Twelve months ended
	September 30		September 30
All amounts in millions unless otherwise stated	2020		2019	2020		2019
Net income	206,291		359,771		55,010		95,939
Finance costs, net of income taxes and zakat	4,265		2,608		1,137		696
Net income before finance costs, net of income taxes and zakat	210,556		362,379		56,147		96,635
As at period start:	133,288				35,543
Non-current borrowings		73,302			19,547
Current borrowings	40,006		28,883		10,668		7,702
Total equity	1,049,446		973,892		279,852		259,705
Capital employed	1,222,740		1,076,077		326,063		286,954
As at period end:	411,552				109,747
Non-current borrowings		133,288			35,543
Current borrowings	96,770		40,006		25,805		10,668
Total equity	1,113,737		1,049,446		296,997		279,852
Capital employed	1,622,059		1,222,740		432,549		326,063
Average capital employed	1,422,400		1,149,409		379,306		306,509
ROACE	14.8%		31.5%		14.8%		31.5%

• Supplementary information is converted at a fixed rate of U.S. dollar 1.00 = SAR 3.75 for convenience only.

Saudi Arabian Oil Company

2

Third quarter and nine months 2020

All amounts in millions unless otherwise stated

Free cash flow

Aramco uses free cash flow to evaluate its cash available for financing activities, including dividend payments. Aramco defines free cash flow as net cash provided by operating activities less capital expenditures.

Free cash flow for the third quarter of 2020 was SAR 46,547 ($12,411), compared to SAR 77,290 ($20,611) for the same quarter in 2019, a decrease of SAR 30,743 ($8,200). This decrease was principally due to lower operating cash flow, reflecting a decline in earnings and unfavourable movements in working capital, partially offset by a reduction in settlement of taxes and zakat. Capital expenditures decreased by SAR 6,418 ($1,711) in the third quarter of 2020, compared to the same quarter in 2019, as a result of the on-going capital spending optimization and efficiency programs.

Free cash flow for the first nine months of 2020 was SAR 125,752 ($33,533), compared to SAR 219,716 ($58,591) for the same period in 2019. This decrease of SAR 93,964 ($25,058) mainly reflects lower earnings resulting from lower crude oil prices and volumes sold and weaker refining and chemicals margins. This was partially offset by a decrease in settlement of taxes and zakat and cash released from working capital changes. Capital expenditures for the first nine months of 2020 declined in comparison to the same period in 2019, due to the implementation of capital spending optimization and efficiency programs in response to the current economic environment.

		Third quarter
	SAR		USD*
All amounts in millions unless otherwise stated	2020	2019	2020	2019
Net cash provided by operating activities	70,481	107,642	18,794	28,705
Capital expenditures	(23,934)	(30,352)	(6,383)	(8,094)
Free cash flow	46,547	77,290	12,411	20,611

• Supplementary information is converted at a fixed rate of U.S. dollar 1.00 = SAR 3.75 for convenience only.

Nine months

SARUSD*

2020 2019 2020 2019

200,858 304,331 53,561 81,155

(75,106) (84,615) (20,028) (22,564)

125,752 219,716 33,533 58,591

Gearing

Gearing is a measure of the degree to which Aramco's operations are financed by debt. Aramco defines gearing as the ratio of total borrowings less cash and cash equivalents to total borrowings less cash and cash equivalents plus total equity. Management believes that gearing is widely used by analysts and investors in the oil and gas industry to indicate a company's financial health and flexibility.

Gearing increased from -0.2% (net cash position) as at December 31, 2019 to 21.8% as at September 30, 2020. This principally reflects an increase in debt in connection with the deferred consideration on acquisition of SABIC, the full drawdown of a $10 billion term loan facility and the consolidation of SABIC's net debt onto Aramco's balance sheet.

SARUSD*

All amounts in millions unless otherwise stated

September 30,	December 31,		September 30,	December 31,
2020	2019		2020	2019

Total borrowings (current and non-current)	508,322	175,585		135,552	46,823
Cash and cash equivalents	(197,649)	(177,706)		(52,706)	(47,388)
Net debt / (cash)	310,673	(2,121)		82,846	(565)
Total equity	1,113,737	1,046,235		296,997	278,996
Total equity and net debt / (cash)	1,424,410	1,044,114		379,843	278,431
Gearing	21.8%	(0.2)%		21.8%	(0.2)%

• Supplementary information is converted at a fixed rate of U.S. dollar 1.00 = SAR 3.75 for convenience only.

3 Saudi Arabian Oil Company

Third quarter and nine months 2020

All amounts in millions unless otherwise stated

Earnings before interest, income taxes and zakat (EBIT)

Aramco believes EBIT provides useful information regarding its financial performance to analysts and investors. Aramco defines EBIT as net income plus finance costs and income taxes and zakat, less finance income.

EBIT for the third quarter ended September 30, 2020, was SAR 95,477 ($25,461) compared to SAR 165,479 ($44,129) during the same quarter in 2019, representing a decrease of SAR 70,002 ($18,668). This primarily reflects the impact of lower crude oil prices and volumes sold, and weaker refining and chemicals margins.

EBIT for the nine months ended September 30, 2020, was SAR 274,905 ($73,308) compared to SAR 512,378 ($136,635) during the same period in 2019. This decrease of SAR 237,473 ($63,327) was mainly due to the impact of lower crude oil prices and volumes sold, and reduced refining and chemicals margins.

			Third quarter					Nine months
	SAR		USD*			SAR		USD*
All amounts in millions unless otherwise stated	2020		2019	2020		2019	2020		2019	2020		2019
Net income	44,209		79,839	11,789		21,291	131,308		255,710	35,015		68,190
Finance income	(681)		(1,411)	(181)		(376)	(2,315)		(4,125)	(617)		(1,100)
Finance costs	3,407		1,623	909		433	6,906		4,402	1,842		1,174
Income taxes and zakat	48,542		85,428	12,944		22,781	139,006		256,391	37,068		68,371
Earnings before interest, income
taxes and zakat	95,477		165,479	25,461		44,129	274,905		512,378	73,308		136,635

• Supplementary information is converted at a fixed rate of U.S. dollar 1.00 = SAR 3.75 for convenience only.