Aramco Caps Record Year, but Only a Modest Dividend Increase As Spending Set To Jump

Aramco 2222 reported record net income of $161.1 billion compared with $110.0 billion for full-year 2021 on higher oil prices and volumes and stronger refining margins. Total hydrocarbon volumes increased to 13.6 mmboe/d from 12.3 mmboe/d in 2021 as crude production increased to 11.5 mmboe/d from 9.2 mmboe/d in 2021.

Free cash flow in 2022 was also a record at $148.5 billion compared with $107.5 billion in 2021. Stronger cash flow generation during 2022 resulted in gearing falling to negative 7.9% at end-2022 from 12.0% at end-2021. Given strong cash flow and low debt, management announced a 4% increase in the quarterly dividend to $19.5 billion. Although there was no announcement of a special dividend like last year, management will pay a bonus share of one share for every 10 shares held. Despite similarly strong cash flow and lower debt levels, Aramco continues to pay out less than integrated global peers.

The modest dividend growth is largely attributable to the coming step-up in capital spending. Capital spending in 2022 amounted to $37.6 billion, an 18% increase compared with the year before. It will increase even more in 2023 with guidance in the range of $45 billion-$55 billion and for further growth until mid-decade. The increasing investment levels set Aramco apart from global integrated peers that are maintaining investment in tight ranges while returning surplus cash flow to shareholders. Aramco instead is investing in growth. The majority of capital spending continues to go toward increasing upstream production capacity to 13 mmb/d by 2027 and increasing gas production by more than 50% by 2030. Capital will also go toward a series of refining and chemical projects in Saudi Arabia and China as the company seeks to increase its chemicals production capacity to up to 4 mmb/d by 2030 at the earliest.

We plan to incorporate the latest financial data in our model, but don’t anticipate a change to our fair value estimate of SAR 38 per share and wide moat rating.