Aramco Earnings: Profits Slide on Lower Prices, but Special Payouts Continue to Boost Total Yield

Saudi Aramco’s 2222 third-quarter net income fell to $32.6 billion from $42.4 billion the year before largely on lower oil prices and volumes. Total hydrocarbon volumes decreased to 12.8 million barrels of oil equivalent per day from 14.4 mmboe/d last year. Free cash flow decreased to $20.3 billion in the quarter from $45.0 billion in the prior year. Net debt fell to negative $33.0 billion from net debt of negative $32.7 billion at end-2022, but the gearing ratio rose to negative 7.6% from negative 7.9%. We maintain our fair value estimate of SAR 30.50 and wide moat rating for Aramco.

Aramco paid $19.5 billion in dividends during the third quarter, or $0.08 per share, an increase of 4% from the previous year and implying a 3.6% yield. It will pay the same dividend next quarter. Aramco also paid its second dividend, of six performance-linked dividends of $9.9 billion, in the quarter, based on full-year 2022 and year-to-date 2023 results. The program will return 50%-70% of annual free cash flow, net of the ordinary dividend and certain external investments, to shareholders. The added variable component remains a positive as it increases the payout to the same level as its peers, who typically repurchase shares instead and allow shareholders to share in the upside of higher oil prices.

Capital spending in the quarter amounted to $11.0 billion, an increase from $9.0 billion the prior year, as the company undergoes the largest capital spending program in its history with the aim of increasing production capacity and expanding its refining business. The company believes demand for oil and gas will continue to increase over the medium- to long term and is investing accordingly. In the third quarter, Aramco continued to invest in crude and natural gas projects in addition to its first liquid natural gas investment, the purchase of a minority stake in MidOcean Energy for $500 million.