Saudi Aramco Hikes 2023 Dividend To $98 Billion Despite Lower Profit

In what may be an early signal that the cadence of “unexplained” oil supply-linked terrorism incidents is about to see a significant increase (wink wink), on Sunday, Saudi oil giant Aramco raised its total 2023 dividend payment by 30% to nearly $98 billion, assuring that Saudi Arabia continues to receive record income from its golden, or rather oil black, goose….even as the world’s largest oil firm by both production and market capitalization reported a 25% drop in earnings for 2023 due to lower oil prices, OilPrice reported.

The Kingdom has been restricting output by around 1.5 million barrels per day (bpd) for the better part of last year—500,000 bpd from cuts by several OPEC+ members that began in May 2023, and another 1 million bpd in extra voluntary production restrictions the Saudis started implementing in July 2023.

As a result of the Saudi production cuts and the lower oil prices in 2023 compared to 2022 when the Russian invasion of Ukraine sent crude to above $100 per barrel, Aramco reported a 25% decline in its net income—to $121.3 billion for 2023, down from a record-high of $161.1 billion for 2022.

Reduced refining and chemicals margins also contributed to the lower income, the Saudi oil giant said.

The slump in profits—which nevertheless were the second-highest ever—didn’t deter Aramco from significantly boosting its dividend payouts to shareholders, the biggest beneficiary of which is the Kingdom of Saudi Arabia, as it owns about 98% in the oil giant via direct ownership and the sovereign wealth fund.

Last year, Aramco paid as much as $97.8 billion in total dividends, a 30% jump compared to the 2022 dividend payout. The company’s board declared a 4% annual increase in Q4 2023 dividend to $20.3 billion and a 9% increase in the performance-linked dividend to $10.8 billion, compared to two payments of $9.9 billion in the second half of 2023.

In August last year, the oil giant said it would calculate the first performance-linked dividends based on the combined full-year results of 2022 and 2023, to be distributed over six quarters starting from the third quarter of 2023.  

Total full-year performance-linked dividend to be paid in 2024 is expected to be $43.1 billion, including the $10.8 billion in Q1, based on the previously announced mechanism and subject to Board approval, Aramco said.

Last year’s capital investments rose by 28% to $49.7 billion, while 2024 capital investments are expected to be between $48 billion and $58 billion.

Overall capital investment between now and 2028 is set to shrink by about $40 billion due to the Kingdom’s directive to Aramco in January to stop work on expanding its maximum sustainable capacity to 13 million barrels per day, instead keeping it at 12 million bpd. 

Capital expenditures will thus be lower than previously planned, “mainly from deferral of projects not yet commissioned and reductions in infill drilling,” the Saudi firm said.

“The recent directive from the government to maintain our Maximum Sustainable Capacity at 12 million barrels per day provides increased flexibility, as well as an opportunity to focus on increasing gas production and growing our liquids-to-chemicals business,” said Aramco president and chief executive Amin Nasser.

“At the same time, we continue to make progress on several strategic crude oil increments which will contribute to our reliability, operational flexibility and ability to seize market opportunities.”

Progress continues on the Marjan, Berri, Dammam, and Zuluf crude increment projects, Aramco said.

As the world’s largest oil firm bets on continued demand for oil and gas, Saudi Aramco is also rewarding its main shareholder – the Kingdom of Saudi Arabia – with billions of U.S. dollars in dividends, adding to the massive revenues from oil that the state receives.

The state and the Public Investment Fund (PIF), the sovereign wealth fund, are getting the lion’s share of dividends, as they jointly control 98% of Aramco.

The dividend hike last year is not only a boon to Saudi state finances. It could also be a move to attract potential new shareholders in a future new share sale, which Aramco is said to be considering.