Aramco Keeps $31 Billion Dividend in Key Payout for Kingdom

Aramco maintained its quarterly dividend at $31 billion despite lower profit as the payout becomes increasingly crucial for Saudi Arabia’s government in its multitrillion-dollar economic makeover plan.

The distribution by the world’s largest oil-exporting company is key for the kingdom as crude prices remain far below levels needed to balance the budget، which officials say will be in deficit for several years. Crown Prince Mohammed Bin Salman is pushing ahead with expensive ventures such as the futuristic project of Neom، but some plans are being dialed back because of funding issues.

More cash than debt

Aramco said that it plans to distribute about $124 billion in total this year، of which about $43 billion would be a performance-linked component. While the company still has more cash than debt، the payouts are depleting those reserves and investors will scrutinize the level of the special dividend next year.

The company’s net cash was about $2.3 billion at the end of the second quarter، down from more than $16 billion three months earlier، according to Bloomberg Intelligence data. The payouts may flip Aramco into a net debt position as early as the third quarter، for the first time since the Covid-19 pandemic، BI analyst Salih Yilmaz said in a note Tuesday.

Aramco’s net income fell 3.4% to $29.1 billion in the quarter compared with a year earlier، according to a statement Tuesday. That almost matched analysts estimates compiled by Bloomberg. Free cash flow — money from operations after capital expenditure — of $19 billion was lower than the dividend. 

Production Curbs

Aramco sold its oil at higher prices in the quarter on average، but pressure on profit came from Saudi Arabia’s decision to curb crude output. Production has been near 9 million barrels a day for the past year، as the kingdom leads efforts by the Organization of Petroleum Exporting Countries to revive the oil market. That’s the lowest level in more than three years. 

Output is expected to increase later this year as Saudi Arabia unwinds some of its voluntary curbs starting in the fourth quarter.

Earnings were also hit by weak margins from turning crude into fuels and revaluation of inventories. The company’s downstream business، which include refining، reported a loss before interest and taxes of $262 million in the quarter compared with a $788 million profit a year earlier. 

Lackluster demand، especially for fuels such as diesel، has contributed to squeezing margins around the world. Chevron Corp. missed second-quarter earnings estimate and France’s TotalEnergies SE’s profit dropped on the back of weaker refining.

Shares Rise

Shares in Aramco gained as much as 2.6% to 27.50 riyals in Riyadh، rising back above the price of June’s secondary share sale by the Saudi government.

Still، the stock is down 17% this year، underperforming global oil majors such as Exxon Mobil Corp. and Shell Plc that have also kept their focus on returning cash to shareholders. It’s the worst performer this year in the 21-member index of global integrated oil companies compiled by Bloomberg Intelligence.

Besides the dividend، the Saudi government has also leaned on Aramco this year to raise more than $12 billion in the secondary share sale. The kingdom’s economy has been contracting for four quarters straight، and the International Monetary Fund last month downgraded its projections for growth by more than any other major country it tracks. 

The kingdom needs oil near $100 a barrel to balance the budget، according to the IMF. Aramco sold its oil at an average of $85.70 a barrel in the second quarter، compared with $78.80 a year earlier.