Ignoring production cuts dragging down Q2 profits, Saudi Aramco insists on paying out $31 billion in dividends
Saudi Aramco's net profit fell by 3.4% in the second quarter, but still maintained a quarterly dividend of $31 billion. The Saudi government's economic reform plan has made dividend payments important as Saudi Arabia still faces a budget deficit. Saudi Aramco's stock price has fallen by 19% year-to-date, underperforming other global oil giants. The Saudi government has also required Saudi Aramco to issue additional shares to raise over $12 billion. The Saudi economy has contracted for four consecutive quarters
According to the Zhitong Finance and Economics APP, Saudi Aramco will maintain its quarterly dividend at $31 billion, as this dividend payment has become increasingly important in Saudi Arabia's multi-trillion-dollar economic reform plan.
The dividend of this global largest oil exporter is crucial to Saudi Arabia, as the price of crude oil remains far below the level needed for the country's budget balance. Officials say Saudi Arabia's budget deficit will persist for at least several years. Crown Prince Mohammed bin Salman has pushed forward some costly projects, such as the Neom future city project, as well as significant investments in tourism, sports, and artificial intelligence, but these plans are being canceled due to funding issues.
The statement released by Saudi Aramco on Tuesday showed a 3.4% year-on-year decline in net profit for the second quarter, to $29.1 billion. This is broadly in line with analysts' forecasts.
Saudi Aramco stated that it will pay a total of about $124 billion in dividends this year, including a special project. This is the world's largest dividend distribution, but in recent quarters, free cash flow (operating cash flow after deducting capital expenditures) has not fully covered dividend distributions. A report by Bloomberg Intelligence last month indicated that this payment pace could reduce the company's net cash by $8 billion to $9 billion per quarter.
Some pressure comes from Saudi Arabia's crude oil production remaining at nearly 9 million barrels per day over the past year, as Saudi Arabia, leading OPEC, has cut oil production to support oil prices. This is the lowest level in over three years. With Saudi Arabia expected to start phasing out some voluntary production cuts from the fourth quarter, oil production is expected to increase later this year.
Saudi Aramco's stock price has fallen by 19% year-to-date, underperforming global oil giants such as Exxon Mobil (XOM.US) and Shell (SHEL.US), both of which have been focused on returning cash to shareholders. Saudi Aramco has fallen below the price at which it issued new shares this year and is the worst performer among the 21 components of the global comprehensive oil company index compiled by Bloomberg Intelligence.
In addition to dividends, the Saudi government has also required Saudi Aramco to raise over $12 billion through new share issuances this year. The Saudi economy has contracted for four consecutive quarters. The International Monetary Fund (IMF) has lowered its GDP growth forecast for Saudi Arabia in 2024 from 2.6% to 1.7%.
The IMF states that Saudi Arabia needs oil prices close to $100 per barrel to balance its budget. However, concerns about a U.S. economic downturn continue to weigh on oil prices. On Tuesday, Brent crude prices fell to nearly $76 per barrel, hitting a seven-month low.
