Saudi Aramco, the world’s largest oil producer, disclosed a 23% decline in net profit for the third quarter, attributing the drop to lower oil prices and reduced volumes. Nevertheless, the results slightly exceeded the forecasts of industry analysts, contributing to a modest upturn in the company’s shares during early trading.
The state-owned oil giant reported a net profit of $32.6 billion for the quarter ending on September 30, surpassing the $31.8 billion projection provided by a consensus of 12 analysts.
The decline in net profit was predominantly linked to lower oil prices and reduced volumes, which were partially offset by a decrease in production royalties.
As a result, Saudi Aramco’s shares, which had already appreciated by approximately 15% this year, experienced a modest gain of 0.6%, reaching 33.65 riyals by 0900 GMT.
This report comes in the wake of third-quarter profit declines reported by industry peers Chevron and Exxon Mobil, attributed to the cooling of energy prices.
Saudi Arabia, the world’s leading oil exporter and the de facto leader of the OPEC group, announced its intention to maintain a voluntary oil output reduction of 1 million barrels per day (bpd) until the year’s end, with plans to review this decision in the coming month.
Aramco’s third-quarter revenue dropped from $144.99 billion in the previous year to $113.09 billion, while royalty and tax payments decreased from $24.3 billion to $14.7 billion.
The company declared a base dividend of $19.5 billion for the quarter, regardless of performance. Additionally, a performance-linked dividend of $9.87 billion will be disbursed in the fourth quarter, based on 2022 and the first nine months of 2023.
It’s important to note that the Saudi government remains the majority shareholder of Aramco, directly holding 90.19% of the company, while the sovereign Public Investment Fund (PIF) owns 4%, and PIF subsidiary Sanabil holds another 4%, according to LSEG data.
Saudi Arabia recently reported a budget deficit of approximately $9.5 billion in the third quarter, a notable shift from the nearly $30 billion budget surplus recorded in the entirety of 2022.
The country is in the midst of executing its Vision 2030 economic transformation plan, which focuses on expanding the private sector and promoting non-oil economic growth.
Aramco expressed optimism regarding the long-term demand for energy and reiterated its commitment to investments through its most substantial capital program in history. Capital expenditure for the quarter rose to $11 billion from $9 billion in the previous year. However, RBC noted that Aramco had refined its 2023 capex forecast to a range of $48 billion to $52 billion, down from the earlier projection of $45 billion to $55 billion.
Saudi Aramco’s initial public offering in late 2019, the largest in the world at the time, raised $25.6 billion, with subsequent share sales increasing the total to $29.4 billion.
The company is now exploring the possibility of a secondary share offering on the Riyadh stock exchange, with the potential to raise as much as $50 billion, as reported by the Wall Street Journal in September.
In 2021, Crown Prince Mohammed bin Salman, Saudi Arabia’s de facto ruler, announced plans for Saudi Aramco to sell more shares, with the proceeds earmarked to support the PIF, the primary funding source for Vision 2030.
(Note: All currency values are reported in riyals, with an exchange rate of $1 = 3.7513 riyals)
