Saudi oil giant Aramco reports a 25% drop in full-year profits

Saudi Arabia’s state oil giant Aramco reported a 25% drop in profits to $121.3 billion in 2023, down from $161.1 billion in 2022, and raised its mega dividend despite the “economic adverse winds”.

Aramco raised its fourth-quarter base dividend by 4% to $20.3 billion, and its performance-related dividend by 9% to $10.8 billion, resulting in a $31 billion gain for the government Saudi Arabia and Aramco stakeholders.

Despite the profit decline, the result still represents Aramco’s second-highest net profit ever, far surpassing the profitability of its largest global rivals.

“The year-over-year decrease can be attributed to declines in crude oil prices and volumes sold, as well as reduced refining and chemical margins, partially offset by a decrease in production royalties during the year and lower taxes on income and zakat,” Aramco said. in a statement.

Aramco said total revenue also fell 17% to $440.88 billion, down from $535.19 billion last year. Free cash flow also fell to $101.2 billion in 2023, compared to $148.5 billion in 2022.

“It has been a year that has seen global oil demand reach record levels despite geopolitical volatility, economic headwinds and inflationary pressures,” Aramco CEO Amin Nasser said on the earnings call on Sunday.

“We expect the global oil market to remain healthy for the rest of this year, and we expect it to be quite robust with growth of around 1.5 million barrels,” Nasser added. Saudi Arabia last week led OPEC+ countries in a decision to extend voluntary oil production cuts until the end of June.

The gains come after the Saudi government transferred an additional 8% of Aramco shares, worth $164 billion, to Saudi Arabia’s Public Investment Fund (PIF). Yasir Al-Rumayyan is both the chairman of Aramco’s board of directors and the governor of the PIF.

The transfer of shares to the PIF is one of the largest transactions Aramco has undertaken since the listing and will allow the PIF to benefit from Aramco’s mega dividend payout policy.

Aramco paid $97.8 billion in dividends in 2023, up 30% from 2022. The dividend tied to full-year performance for 2024 is expected to be $43.1 billion.

The share transfer “does not change anything,” Aramco Chief Financial Officer Ziad Al-Murshed said on the earnings call. “We are healthy and do not need to issue new shares,” he said in response to a question about speculation about a secondary or additional public offering of shares.

PIF already owned 4% of Aramco and controls Sanabil, a financial investment company, which also owns 4% of Aramco. PIF’s 16% stake in Aramco, worth an estimated $328 billion, will strengthen the fund’s financial position and increase its ability to deploy capital to invest on behalf of the Saudi state, which is gradually diversifying its economy away from petrolium.

Aramco’s new stake also brings the PIF closer to reaching its goal of $1 trillion in assets under management by the end of 2025.

Aramco confirmed it will halt plans to increase its oil production capacity from 12 million barrels per day to 13 million barrels per day, a move that is expected to reduce capital investments by about $40 billion between 2024 and 2028.

“The government’s recent directive to maintain our maximum sustainable capacity at 12 million barrels per day provides greater flexibility, as well as an opportunity to focus on increasing gas production and growing our liquids to chemicals business,” Nasser said.

Aramco’s average hydrocarbon production was 12.8 million barrels of oil equivalent per day in 2023, including 10.7 million barrels per day of total liquids.

Aramco aims to increase its investments in other ventures, including gas and gas infrastructure. The goal is to increase gas production by more than 60% by 2030, compared to 2021 levels. Its flagship gas investment is the Jaffoura project – the largest gas field in the Middle East – with approximately 200 trillion standard cubic feet of natural gas.