Falling oil prices cause Saudi Aramco’s profit to slip 19%

Saudi Aramco on Tuesday reported $31.9 billion in net income for the first quarter, a drop of about 19% compared with the same period a year ago, mainly because of lower oil prices.

But with oil prices still relatively robust, Saudi Aramco remains enormously profitable — its earnings were roughly comparable to the quarterly profits reported by Exxon Mobil, Chevron, Shell and BP combined — mainly because it produces enormous volumes of petroleum from giant fields in Saudi Arabia at relatively low cost.

Prices for Brent crude, the international benchmark, were about $81 a barrel on average for the first three months of 2023, compared with about $100 a barrel in the same period a year earlier.

Aramco’s main owner, the Saudi government, recently orchestrated a cutback in production by the group of countries known as OPEC Plus, apparently aiming to halt falling prices. Prices jumped on that announcement, but then resumed sliding, dipping as low as about $72 a barrel earlier this month before recovering to about $76 by Tuesday.

On a call with financial analysts, Amin Nasser, Aramco’s chief executive, said that demand for oil seemed likely to remain healthy this year as the economies of China and India, two major importers, grow strongly. He attributed the recent drop in oil prices to concerns that economic growth would be sapped by central banks raising interest rates, and by the regional banking crisis in the United States.

“In our view, the markets overreacted,” he said.

Aramco is also investing in expanding output, apparently shrugging off concerns that climate change risks might crimp the market for fossil fuels in the coming years.

The company now has to contend with large quantities of Russian oil flowing into key markets like China and India because of Western sanctions that bar most Russian oil from Europe. Nasser said that the Russian oil rerouted to India and China had “no impact” on Saudi sales to these countries, but he said it had hurt other unnamed producers.

Aramco is taking steps to lock up these markets for the long term, through refining and chemical deals, mostly in Asia. Recently, Aramco reached agreements to participate in developing a large petroleum complex in China as well as to acquire a 10% stake in Rongsheng Petrochemical, another Chinese company, for $ 3.6 billion. Aramco said that the two agreements give the Saudi company the right to supply a total of 690,000 barrels a day of oil.

Like its Western rivals, Aramco is under pressure to return more money to shareholders — in this case mainly the Saudi government, which is hungry for cash to finance development plans.

Aramco said it would pay $19.5 billion in dividends for the quarter, a 4% increase over the previous period. Aramco also said it would look into devising a mechanism for adding what it called “performance-linked” dividends to its basic payout. Biraj Borkhataria, an analyst at RBC Capital Markets, an investment bank, estimated that Aramco might pay out an additional $12 billion to $18 billion in 2023. In 2022, the company paid $75 billion in dividends.

An increase of that order would raise the company’s payouts to about 4% of the value of shares, from about 3.5%, Borkhataria said, noting that such payments would still be below those of the western oil giants in percentage terms.