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Aramco’s net income dropped 3.4% y-o-y to SAR 109 bn in 2Q 2024, despite revenues rising 5.7% y-o-y to SAR 425.7 bn, the company said in an earnings release (pdf). On a 1H basis, the oil giant’s bottomline dropped 9.1% y-o-y to SAR 211.3 bn in 1H 2024, while revenues inched up 0.9% at SAR 827.8 bn.
OPEC+ production cuts left their mark: Aramco attributed the weaker bottom line performance to “lower crude oil volumes sold and weakening refining margins,” as OPEC+ mandated production cuts continue to cap output at the major state-owned firm at least into the third quarter of this year. At the same time, downstream earnings from the outfit’s petrochemical operations continue to be dogged by higher feedstock prices and a surge in shipping prices due to Red Sea disruptions.
Shareholders still have reason to celebrate: The oil giant is maintaining its dividend payments, saying it will distribute c.SAR 116.5 bn (USD 31.1 bn) to shareholders at SAR 0.48 apiece, it said in a separate disclosure. The payout is composed of SAR 76 bn in base dividends for 2Q 2024, and SAR 40.4 bn in performance-linked dividends for the combined full year results of 2022 and 2023. Distribution is set for Thursday, 29 August.
REMEMBER– The government counts on Aramco dividends to bridge budget deficit and to finance its diversification away from oil, with oil accounting for some 67% of government revenues at present. The company’s dividends pushed SAMA’s foreign reserves to an 18-month high of SAR 1.67 tn in June. Saudi Arabia’s government owns 97% of Aramco.
Analysts raise dividend sustainability concerns: Aramco’s dividend payments exceed the freecash flow (FCF) the company is generating, putting the company in a net negative FCF position that is “unsustainable,” Bloomberg said citing analysts and Bloomberg Intelligence (watchtime, 4:38). To sustain these dividends, the world’s largest oil company may need to take on more debt, the business information service said.
Speaking of which: Aramco’s FCF fell 18.1% y-o-y to SAR 71 bn in 2Q 2024, and 22.8% to SAR 156.4 bn. The company attributed the declines in both periods to lower earnings, “unfavorable” reshuffles to working capital, and capex.
Aramco’s capex surged 15.9% y-o-y to SAR 45.5 bn (USD 12.1 bn) in 2Q 2024, as the company continued to double down on increasing capacity in both upstream and downstream segments, the earnings release said. On a 1H basis, capex surged 19.5% y-o-y to SAR 86.1 bn on the back of efforts to sustain maximum crude oil production capacity and the development of new gas projects.
What they said: The company is leveraging its “market-leading performance” to maintain “a base dividend that is sustainable and progressive, and a performance-linked dividend that shares the upside with our shareholders,” said President and CEO Amin Nasser. Aramco is continuing to look at new additions to its portfolio moving forward, Nasser said.
Global oil market sell-off overblown, Nasser says: The sell-off that gripped global equity, currency, and oil markets earlier this week was an “overreaction” from the market “and the fundamentals do not support the drop in prices that we are witnessing today,” Nasser said on the company’s earnings call, according to Bloomberg. Brent crude prices fell to USD 75 / bbl on Monday.
The story is making the rounds in the international press: Reuters | Bloomberg | CNBC | Associated Press
OTHER 2Q HIGHLIGHTS-
Aramco took the largest secondary offering in EMEA since 2002 to market in June, raising USD 11.1 bn in a follow-on offering that attracted heavy interest from foreign institutional investors. The offering was the largest in equity capital markets in the region since Aramco’s own blockbuster IPO in 2019.
ALSO-
- Aramco signed definitive agreements to acquire a 10% stake in Horse Powertrain — a joint venture between French carmaker Renault and China’s automaker Geely — at the end of June ;
- It also signed a non-binding agreement to acquire a 25% stake in the second phase of Sempra’s Port Arthur LNG export plant in Texas, with the agreement also including Aramco locking down five mn tons of LNG shipments from the plant each year for 20 years;
- The company’s Wa’ed Ventures participated in a USD 30 mn series A funding round for UAE-based contech startup Tenderd.
