Aramco Maintains $31 Billion Dividend Despite Profit Dip, Crucial for Saudi Economic Plans

Aramco has upheld its quarterly dividend at $31 billion, even as profits dipped, underscoring the payout's growing importance to Saudi Arabia's economic transformation. The world’s largest oil exporter’s dividend is vital as crude prices remain below levels needed to balance the budget, which officials forecast will run a deficit for several years.

Crown Prince Mohammed Bin Salman's ambitious ventures, such as the futuristic Neom project and significant investments in tourism, sports, and artificial intelligence, face funding challenges. Consequently, plans are being scaled back.

Aramco reported a 3.4% drop in net income to $29.1 billion for the second quarter, aligning closely with analysts' estimates. The company's free cash flow stood at $19 billion, lower than the dividend payout.

Despite lower profits, Aramco aims to distribute approximately $124 billion this year, including a special component. This pace of payout is expected to reduce net cash by $8 billion to $9 billion each quarter, according to Bloomberg Intelligence.

The pressure on Aramco partly stems from Saudi crude output, which has hovered around 9 million barrels a day for the past year. This production level, the lowest in over three years, is part of the kingdom's efforts to boost the oil market in collaboration with the Organization of Petroleum Exporting Countries (OPEC). Output is anticipated to rise later this year as Saudi Arabia eases some voluntary curbs in the fourth quarter.

Aramco's shares have declined by 19% this year, underperforming global oil majors such as Exxon Mobil Corp. and Shell Plc. The stock has dropped below the price of this year’s secondary share sale, making it the worst performer in the 21-member index of global integrated oil companies compiled by Bloomberg Intelligence.

Despite the challenges, Aramco's second-quarter net profit surpassed market expectations. The company posted a quarterly net profit of $29.07 billion, down from $30.83 billion a year earlier. Chief Executive Amin H. Nasser highlighted the company’s resilience and adaptability through market cycles.

Improved crude-oil prices from the first quarter, driven by easing inflationary pressure, strong seasonal growth, and declining oil inventories, contributed to Aramco's performance. The company declared a base dividend of $20.28 billion for the second quarter, supplemented by a performance-linked dividend of $10.77 billion.

Saudi Arabia, the world's largest oil exporter, heavily relies on Aramco’s payouts to fund its megaprojects, including a high-tech city in the desert and a global airline. The government also raised $12.35 billion in an Aramco stock sale in June to support these ambitions and invest in new energy industries under its Vision 2030 plan.

Aramco aims to expand its global liquefied natural gas (LNG) portfolio. This year, it has signed agreements with LNG producers such as Texas' NextDecade and California-based Sempra. The company sees strong demand-led growth for LNG as the world transitions to new energy sources, with gas being a crucial fuel and feedstock in various industries.

Global oil majors also reported higher-than-expected second-quarter profits, with Exxon Mobil, Shell, and BP exceeding market forecasts. However, Chevron fell short of expectations due to weaker refining margins.

Aramco reaffirms its commitment to declaring a total of $124 billion in dividends for the year, maintaining its crucial role in supporting Saudi Arabia's economic diversification efforts.