Saudi Aramco, the world's most profitable oil company and a cornerstone of Saudi Arabia's economy, reported a 3.4% decline in its second-quarter profits, primarily due to lower crude volumes and softer refining margins. Despite this dip, the company maintained its substantial dividend payouts, announcing $31.1 billion in dividends for the quarter, a move that highlights its commitment to shareholder returns amid fluctuating market conditions.
In the three months ending June 30, Aramco posted a net income of $29.03 billion, surpassing the median estimate of $27.7 billion from analysts. This financial performance underscores Aramco's resilience even as it navigates a challenging economic landscape. The dividends declared include $10.8 billion in performance-linked payouts, a strategy introduced last year that supplements a base dividend paid regardless of quarterly results. This approach is uncommon among publicly traded companies and reflects Aramco's strategic financial planning.
Aramco's dividends play a crucial role in Saudi Arabia's economy, particularly under Crown Prince Mohammed bin Salman's Vision 2030 plan, which aims to diversify the kingdom's economic base. Monica Malik, chief economist at ADCB, emphasized the importance of these dividends, noting that they provide "a greater transfer of oil revenue to the government and limit the size of the fiscal deficit."
For the entire year, Aramco projects total dividends of approximately $124.2 billion, aligning closely with previous guidance. This year's performance-linked dividend payouts are based on the combined results of 2022 and 2023, calculated as 50-70% of annual free cash flow after deducting the base dividend. Looking ahead to 2025, these payments will be based on 2024's annual results alone, as explained by Chief Financial Officer Ziad Al-Murshed.
The Saudi government, which recently sold a 0.7% stake in Aramco for $12.35 billion, still holds nearly 81.5% of the company, with the Saudi sovereign wealth fund PIF owning an additional 16%. Malik pointed out that the government has several avenues to extract funds from Aramco, including potential further share sales.
Aramco's capital expenditure rose by nearly 14% year-on-year to $12.1 billion in the second quarter, driven by investments to sustain its maximum crude capacity at 12 million barrels per day and to expand its gas business. Despite these efforts, Saudi Arabia, the leading force in OPEC, is currently producing around 9 million barrels per day, about three-quarters of its capacity, following coordinated production cuts with OPEC+ allies, including Russia.
The global economic environment has exerted pressure on crude prices, with Brent crude trading at its lowest since January, around $76.7 per barrel. This has impacted Aramco's share performance, which has declined about 17% this year, trailing behind Western oil majors. The pressures from lower output and prices have also strained Saudi state finances, prompting the government, Aramco, and PIF to raise billions in capital markets this year. Al-Murshed noted that Aramco's recent $6 billion bond sale aimed to reestablish its yield curve after a prolonged absence from the debt market.
Aramco reported half-year profits of $56.3 billion, down from $61.9 billion the previous year, amidst global economic concerns. The company's revenue for the half-year was $220.7 billion, a slight increase from $218.6 billion the year before, indicating resilience in its core operations despite market volatility. Aramco remains optimistic about future demand, particularly from the aviation sector and China. CEO Amin H. Nasser projected continued demand growth in the second half of the year, stating, "Growth in global oil demand is strong, reaching a record 103.2 million barrels a day in the first half of 2024."
Despite the drop in profits, Aramco maintains a production capacity of over 12 million barrels per day and sold oil at an average of $85.70 per barrel in the second quarter. The company's strategic importance to Saudi Arabia cannot be overstated. Its vast oil reserves, easily accessible in the desert, make it one of the least expensive places to produce crude. This economic advantage supports Crown Prince Mohammed bin Salman's ambitious Vision 2030, which aims to reduce the kingdom's reliance on oil through initiatives like the $500 billion Neom city project. However, falling oil prices have forced Saudi Arabia to reassess some of these grand plans amid looming budget deficits.
