Aramco maintained its quarterly dividend at $31 billion despite lower profit as the payout becomes increasingly crucial for Saudi Arabia's government in its multitrillion-dollar economic makeover plan.
The payout from the world's largest oil exporting company is key for the kingdom as crude prices remain far below the levels it needs to balance the budget, which officials say will be in deficit for at least several years. Crown Prince Mohammed Bin Salman pushes ahead with expensive ventures such as the futuristic project of Neom and big bets on tourism, sports and artificial intelligence, but plans are being dialed back because of funding issues.
Aramco's net income fell 3.4 per cent to $29.1 billion in the second quarter compared with a year earlier, according to a statement Tuesday. That almost matched analysts forecasts. Free cash flow — money from operations after capital expenditure — of $19 billion was lower that the dividend.
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The company has said that it will distribute about $124 billion in total this year, including a special component. The pace of the payout is likely to lower net cash by $8 billion to $9 billion each quarter, according to a Bloomberg Intelligence note last month.
Some of the pressure is coming from Saudi crude output remaining near 9 million barrels a day for the past year, as the kingdom leads efforts by the Organization of Petroleum Exporting Countries to revive the oil market. That's the lowest level is more than three years. Output is expected to increase later this year as Saudi Arabia unwinds some of its voluntary curbs starting in the fourth quarter.
The company's shares have declined 19 per cent this year, underperforming global oil majors such as Exxon Mobil Corp. and Shell Plc that have also kept their focus on returning cash to shareholders. The stock has dropped below the price of this year's secondary share sale, and is the worst performer this year in the 21-member index of global integrated oil companies compiled by Bloomberg Intelligence.
Besides the dividend, the Saudi government has also leaned on Aramco this year to raise more than $12 billion in the secondary share sale. The kingdom's economy has been contracting for four quarters straight, and the International Monetary Fund last month downgraded its projections for growth by more than any other major country it tracks.
The kingdom needs oil near near $100 a barrel to balance the budget, according to the IMF. Benchmark crude prices in London were trading near $76 a barrel on Tuesday. Aramco sold its oil at an average of $85.70 a barrel in the second quarter, compared with $78.80 a year earlier.
