Being the world’s biggest crude oil exporter, Aramco is a major source of income for the Saudi government, with its generous dividends.
Aramco, Saudi Arabia’s state-owned oil company has increased its dividend despite cuts in energy prices and production, leading to a boost for Saudi Arabia, which is currently facing a widening budget deficit.
The payout is about $31 billion, including a special component, as the fourth quarter saw a rise even though the lower oil output cut the net income by 25% year-on-year. The total distribution to the Saudi government and investors this year will be higher than in 2023, said Aramco.
The Saudi government owns an 82% stake in Aramco, and the annual accounts showed that the dividends to shareholders increased by 30% to $97.8 billion in 2023.
Despite a fall in 2023, the profit recorded was the second-highest by the oil giant, after its record $161.1 billion in 2022. The record was due to the high oil prices when Russia launched a full-scale invasion of Ukraine in early 2022.
The price of Brent crude is currently at $82 a barrel, but there is fear that the Middle East tensions could push it to above $100. The price fell from nearly $120 a barrel in 2022, to $67 a barrel last year.
Being the world’s biggest crude oil exporter, Aramco is a major source of income for the Saudi government, with its generous dividends. While Crown Prince Mohammed bin Salman is in pursuit of diversifying the economy and reducing dependence on oil, with expensive projects such as investments in sports leagues and celebrity footballers, and the futuristic city NEOM, the payout from Aramco holds a lot more significance.
The Saudi government is also planning for a follow-on offering of Aramco shares this year. There was quite some hesitation among investors in 2019 during the firm’s IPO. All eyes will not be on the state’s budget shortfall. The government is predicting a deficit every year until 2026. Aramco was also ordered last month to halt its expansion of production capacity, in order to free up spending for other areas.
According to the company’s statement, this suspension will result in a reduction of capital investments by $40 billion between this year and 2028. The capital expenditure is expected to be about $48 billion to $58 billion in 2024.
The news of the increased dividend payout is likely to ruffle some feathers among the campaigners who have condemned time and time again, the huge profits that the energy companies make, while there is a cost-of-living crisis going on in households around the world.
According to a report by the Institute for Energy Economics and Financial Analysis (IEEFA), the five big oil companies – Shell, Chevron, BP, TotalEnergies, and ExxonMobil – are expected to pay dividends that would exceed the $104 billion that was paid last year.
Aramco’s base dividend for the fourth quarter of 2023 was $20.3 billion, which is a 4% increase on the previous year. Its performance-related dividend would be $43.1 billion, which is a 9% increase.
The president and chief executive of Aramco, Amin H Nasser, states “Our capital expenditures increased in line with guidance as we seek to create and capture additional value from our operations, positioning the company for a future in which we believe oil and gas will be a key part of the global energy mix for many decades to come, alongside new energy solutions.”
He also talked about the government’s directive that provides flexibility as well as an opportunity to focus on increasing gas production and growing the liquids-to-chemicals business.
Aramco has been cutting down on its oil output, due to efforts by OPEC and its allies to prevent a supply surplus and revive the market in the process. The production of liquid fuels by Aramco dropped to 10.7 million barrels a day from 11.7 million a day in 2022.