UPDATE 3-Saudi Aramco aims to buy Reliance stake, reports 12% earnings slide

* H1 net of $46.9 billion

* Reliance says LOI signed on stake sale

* Hurt by oil price fall, but lower taxes helped

* Special dividend for government

* Government plans to list Aramco in 2020-21 (Adds details)

By Rania El Gamal and Saeed Azhar

DUBAI, Aug 12 (Reuters) - Saudi Aramco is planning a blockbuster investment in Reliance Industries, the Indian firm announced on Monday, as the energy giant diversifies its business, where weaker oil prices pared its first-half profit by 12%.

State-run Aramco disclosed its closely guarded financials for the first time earlier this year, revealing its 2018 earnings in order to obtain a public rating and start issuing international bonds. The world's top oil producer plans to launch an initial public stock offering or IPO by 2020-2021, having postponed its flotation from 2018.

Aramco signed a letter of intent to take a 20% stake in Reliance's oil-to-chemicals business in one of the largest ever foreign investments in India, Reliance said.

Aramco is expanding its downstream, or refining, chemicals and marketing, footprint globally by signing new deals and boosting the capacity of its plants to secure new markets for its crude and reduce its risk to any downturn in oil demand.

Aramco officials had said the company was looking at multiple downstream opportunities in India, including with Reliance, to tap into growth opportunities there.

For years, Aramco has been a regular crude supplier to Indian refiners via long-term crude contracts. And while it owned stakes in refineries or storage assets in other key Asia markets such as China, Japan and South Korea as well as in the United States where it owns Motiva, the largest refinery in the U.S., it has not secured that same access in India, a fast-growing market for fuel and petrochemicals.

The potential deal with Reliance, if finalised, would help Aramco boost its crude supply to India, one source familiar with the deal has said.

Aramco, which declined to comment on the Indian deal, reported a net profit of $46.9 billion in the first half of 2019, down from $53 billion for the same period last year. Despite the profit decline, Aramco remained the world's most profitable company.

By comparison, Apple Inc, the world's most profitable listed company, made $31.5 billion, U.S. rival Exxon Mobil Corp. around $5.5 billion and Royal Dutch Shell some $8.8 billion.

"Despite lower oil prices during the first half of 2019, we continued to deliver solid earnings and strong free cash flow underpinned by our consistent operational performance, cost management an fiscal discipline," CEO Amin Nasser said in a statement.

The company generated total half-year revenue, including other income related to sales, of $163.88 billion, down from $167.68 billion a year earlier. Free cash flow rose 6.7% to $38 billion.

Aramco said the drop in earnings was mainly due to a 4% fall in the average realised price of crude oil to $66 from $69 per barrel and an increase in purchases, producing and manufacturing costs, and depreciation and amortisation costs.

The drop was partially offset by a decrease of $2.62 billion in income taxes, the company said.

EXPANSION

Aramco has been boosting investment in refining and petrochemicals, with the aim of almost tripling its chemicals production to 34 million tonnes per year by 2030 and raising its global refining capacity to 8-10 million barrels per day (bpd) from more than 5 million bpd.

Its trading arm Aramco Trading Co (ATC) has also been expanding overseas to better compete with global trading houses.

Aramco's deals show how Riyadh wants to ensure it would be the last oil producer left standing when future demand for crude slows, officials say, and with a cost of production around $4 a barrel, Aramco hardly has any competitors.

Aramco said on Monday it will maintain its position as of the world's biggest crude producer and would continue to expand its gas output and sustain its strong financial position.

"Our financials are strong and we will continue to invest for future growth," CEO Nasser said.

Aramco also paid a dividend of $46.4 billion to the government including a special dividend of $20 billion, up from $32 billion a year earlier.

This reflects Saudi Arabia's heavy dependence on the oil company to finance the kingdom's budget needs as well as the lavish lifestyles of its royal family.

PLANNED IPO

Aramco's planned IPO is the centrepiece of Saudi Arabia's economic transformation drive to attract foreign investment and diversify away from oil.

Work on the IPO was halted in 2018 when Aramco shifted its attention to the acquisition of a 70% stake in petrochemicals maker Saudi Basic Industries Corp.

The company said it had a crude output of 10 million barrels a day in the first six months of the year, little changed from a year earlier.

Saudi Arabia has curbed its crude output under an OPEC-led pact to reduce global oil production to lift prices and drain a supply glut.

Saudi Arabia has pumped under 10 million barrels per day for most of 2019 and plans to restrict its exports as it aims to lower global inventories and support oil prices.

(Additional reporting by Davide Barbuscia and Hadeel Al Sayegh; editing by Jason Neely and David Evans)