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Saudi oil giant Aramco (TADAWUL:2222) reported a 15.4% year-over-year decline in its third-quarter profits, attributing the drop to lower crude prices and weaker refining margins. However, Aramco reaffirmed its commitment to a substantial dividend, maintaining a $31.1 billion payout for the quarter.
Profit Performance and Market Reaction
For the quarter ending September 30, Aramco posted net earnings of $27.6 billion, surpassing both the company’s median estimate of $26.9 billion and Citi’s forecast of $26.3 billion. Despite the year-over-year decline, the result outperformed analyst expectations. Nevertheless, Aramco’s share price fell slightly after the report, adding to an approximate 17% decline in its share value year-to-date, comparable with BP’s 18% drop but lagging behind Exxon and Shell.
Dividend Structure and Payouts
Aramco’s $31.1 billion dividend includes a $10.8 billion performance-linked component, introduced in 2022 after a record-breaking profit year driven by high oil prices. This performance-linked dividend supplements a base dividend, which Aramco pays out regardless of quarterly performance—an unusual structure for publicly traded companies. Aramco expects to pay $124.3 billion in dividends for 2024, with $43.1 billion linked to performance.
Impact on Saudi Economy and State Revenues
Lower oil production levels and softer oil prices have contributed to a projected fiscal deficit for Saudi Arabia of 118 billion riyals ($32 billion) in 2023, equivalent to approximately 2.9% of GDP. This forecasted deficit surpasses the 79 billion riyals initially anticipated for 2024.
To help meet financing needs, Saudi Arabia sold an additional stake in Aramco earlier this year, raising $12.35 billion. Additionally, the kingdom became the largest emerging-market debt issuer in the first half of 2023, with its public debt reaching 1.15 trillion riyals ($306.17 billion) by June, a 9.4% annual increase. This debt level is projected to rise to 1.172 trillion riyals by year-end, exceeding earlier estimates of 1.103 trillion riyals.
Key Takeaways
Economic Implications: Lower oil revenues are impacting Saudi Arabia’s fiscal position, with increased public debt issuance and an anticipated rise in the kingdom’s debt by year-end.
Profit Decline: Aramco’s Q3 profit dropped 15.4% due to lower oil prices and refining margins but still beat analyst expectations.
Dividend Resilience: Despite the profit dip, Aramco sustained its dividend, with a substantial portion tied to performance.
