Saudi Aramco increased its dividend by almost $100 billion as it reported its second highest annual profit ever, despite lower oil prices and the state-led production cutbacks that weighed on performance.
The company reported that the net income of the state-owned firm was $121bn in 2018. This is down by about a quarter compared to the $161bn recorded in 2022, when the soaring prices for fossil fuels boosted profits to record highs.
Amin Nasser, chief executive of the world’s biggest oil producer, said that, despite this, it was still possible to increase its dividend total in 2023 to $97.8bn by 30% year-on-year, thanks to additional performance-linked payment introduced last May.
The payout is the main source of revenue for Saudi Arabia, which controls 16 percent of Aramco through its sovereign wealth fund. Crown Prince Mohammed Bin Salman is hoping to use oil revenues to fund a programme of modernisation and diversification for the Kingdom.
Aramco’s shares rose by 1.6 percent in trading on Sunday at the Tadawul local exchange.
The government will also want to ensure that Aramco continues to pay high and consistent dividends. According to sources familiar with the situation, the state sold a 1.7% stake in an IPO that broke records in 2019. It is also considering selling additional shares on the Saudi Stock Market this year.
Aramco refused to comment on government plans.
Nasser stated that oil demand was strong in 2023. It reached record levels of 102.4mn barleys per day “despite geopolitical challenges” and predicted demand would continue to increase this year.
He said that he expected a demand of 104 million b/d by 2024 and even more in 2025.
Aramco, despite global efforts to move away from fossil fuels is betting on the demand for its cheap oil to remain strong for decades. It has invested to increase its production capacity to 13mn B/d by 2027.
Saudi Arabia , in a surprising policy reversal in January, halted its expansion plan. However Nasser maintained that the kingdom was still confident in oil demand on a long-term basis.
He said: “We are firmly convinced that the world needs a mixture of energy sources, including oil and natural gas, renewables and hydrogen, to achieve a stable, orderly and pragmatic energy transition.”
He said that by stopping the oil expansion plans, Aramco will have “increased flexibility” in terms of capital expenditure and be able to expand its petrochemical business and increase the domestic gas production.
Oil expansion was estimated to cost $40bn from 2024-2028. The total capital expenditure next year will be between $48bn to $58bn. This compares with $49.7bn for 2023 and $37.6bn for 2022.
Aramco wants its gas production to rise by 60 percent by 2030 compared to 2021 and the amount of oil used for chemicals to reach 4 million barrels per day.
The company produced 10.7mn barrels per day of crude oil, and other liquids on average last year. This is down from 11.5mn barrels per day in 2022. Aramco was forced to cut its crude oil production by around 2mn B/D in the last 18 months as a result of a series cuts negotiated between Saudi Arabia and members of the Opec+ Alliance in an effort to support prices.
Other areas for potential expansion include investments in liquefied gas projects outside of the kingdom. Aramco acquired a minority share in Australia’s MidOcean Energy in September, marking its first overseas LNG investment.
Nasser said that Aramco could “do LNG deals by ourselves”. “It depends on the opportunities.”
The company also looks at the possibility to extract lithium from brines produced by its oil projects. This is a new field of research which could provide a source of metal for battery manufacturing.
He said, “We’re evaluating the lithium concentration in the water that comes from our wells.” This is still a work-in-progress.