Saudi Arabian state oil giant Aramco (2222. SE) reported a nearly 38% drop in second-quarter net profit on Monday as weaker crude prices and thinner refining and chemicals margins cut profits. Still, the company boosted its dividend with a new performance-linked payout to help fill state coffers.
The world’s largest energy company – and the country’s most valuable publicly traded company with a market value of more than $2 trillion – posted a quarterly profit of 112.81 billion riyals ($30.07 billion) versus 181.64 billion riyals a year earlier, beating a company-provided median estimate from 15 analysts of $29.8 billion. Aramco boosted the dividend payout by more than half to both investors and the kingdom, with the latter expected to face a budget deficit this year.
The Aramco-led OPEC+ alliance has cut oil production in an attempt to push up global crude prices. Prices hit a four-year high of $120 a barrel last summer but have since fallen back, with analysts noting weaker global economic growth and rising interest rates in emerging markets as factors. “Aramco’s results show how much the global oil market has changed,” said Herman Wang, associate director for oil news at S&P Global Commodity Insights. “The kingdom is still largely dependent on oil revenues, and the slumping oil price threatens to jeopardize its ambitious Vision 2030 economic diversification plans.”
Aramco’s profit drop, which reflects lower oil prices, is similar to that of other major energy companies, including BP, Exxon Mobil, and Shell. However, Aramco has offset its earnings decline by selling off assets and cutting costs.
In November, the company completed three transactions with Polish refiner and fuel retailer PKN ORLEN to boost its presence in Europe’s downstream sector. This included acquiring equity stakes of 30% in a 210,000-bpd Gdansk refinery, 100% in its associated wholesale business, and 50% in a jet fuel marketing joint venture. In addition, Aramco established a $1.5 billion Sustainability Fund to invest in technologies supporting the company’s announced Scope 1 and 2 net-zero 2050 ambition in its wholly owned operational assets.
On the upstream side, Aramco made good progress with its projects to increase domestic crude oil production capacity by up to 13 million bpd by 2027, according to the company statement. Construction and engineering activities for the Marjan and Berri crude oil increments were on schedule and budget. Aramco also completed the first phase of its petrochemicals project in Jubail and said it continued advancing its liquids-to-chemicals strategy.
Analysts say the company’s investment in future projects will be vital to sustaining its current profit levels, especially as oil demand is expected to recover this year. On the media call, Aramco chief executive Amin Nasser said that he expects “a gradual recovery in global economic activity and strong demand for petroleum products,” adding that the firm is continuing to pursue investment opportunities. The firm expects capital expenditure to be between $45 billion and $55 billion this year.
