Saudi Aramco has reassured investors that it will increase dividends, despite its profits falling by nearly a fifth due to lower oil prices.
The largest oil company in the world reported a first-quarter profit of $31.9 billion. This is down 19% from the $39.5 billion it earned in the same quarter a year ago. This was primarily due to the decline in crude prices, and the lower production.
It maintained a quarterly distribution of $19.5 billion, the same as the fourth quarter. The company also announced that it would start paying “performance-linked” dividends. This sent its shares up about 3 percent.
Aramco, headquartered in Dhahran, has the exclusive right to produce Saudi Arabia’s vast oil reserves. In 2019, it listed on Saudi Arabia’s Tadawul Stock Exchange, selling less than 2% of its shares. It is valued at under $2 trillion.
Aramco posted a annual profit record of 161,1 billion dollars last year. The vast majority of Aramco’s income comes from its oil and gas production, but it also works to expand the smaller refinery and chemicals businesses.
Around 90% of the company’s shares are owned by Saudi Arabia and 8% by the kingdom’s sovereign fund. Saudi Arabia’s GDP was almost a third oil and gas production, while refining contributed another 6 percent.
The oil prices spiked in the first three months of last year following Russia’s invasion into Ukraine, but then dropped as concerns over supply gave way to worries about a weakening global economy.
Brent crude, the benchmark global price, averaged 81 dollars a barrel during the first quarter of the year. This is down from 102 dollars a barrel for the same period last year.
Aramco reported that “lower global demand growth” for petroleum products during the first quarter 2023 led to lower hydrocarbon prices and continued pressure on the chemical margins compared with the same period of 2022.
In the first quarter 2023, the company produced the equivalent of 12,8 million barrels of crude oil per day. This is down from the 13 million barrels per day it produced in the same time period in 2022.
In an effort to boost prices, Saudi Arabia and the other members of Opec’s cartel of major producers decided to reduce output in May.
Amin Nasser said, “The results are a reflection of Aramco’s high reliability and focus on costs, as well as our ability to respond to market conditions, while we generate strong cash flow and further strengthen our balance sheet.
“In addition to the current base dividend, we will introduce a performance-linked dividends mechanism to reinforce our commitment to maximising long-term shareholder values.”
Biraj Borkhataria of RBC Capital Market said that the results of the first quarter were “largely unsurprising” and “the main development is in the shareholder return front, with Aramco unveiling Aramco’s version of a flexible payout policy”.
He predicted that the company could pay out an additional $12-18 Billion in incremental dividends next year. “This would increase the company’s yield from 3.5 to 4.0-4.2% (from 3.5%).”
Aramco stated that performance-linked dividends will be in the amount of “50-70 percent of the group’s free cash flow net of the base distribution and other amounts, including external investments to be determined by the annual results”.
Nasser said that the outlook for the long term “remains unchanged” as oil and gas are expected to remain a critical component of the global energy blend in the near future. We want to remain a reliable supplier of energy with the capability to offer more sustainable solutions to energy, and support efforts to achieve a orderly energy shift.