Saudi Aramco Earnings: Introduction of Performance-Linked Dividend a Positive

Saudi Aramco 2222 reported first-quarter net income fell to $31.9 billion from $39.5 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 13.0 mmboe/d last year. Free cash flow increased slightly to $30.9 billion in the quarter from $30.6 billion the year prior. Net debt fell to negative $42.6 billion from net debt of negative $32.7 billion at end-2022 as the gearing ratio fell to negative 10.3% from negative 7.9%.

Aramco paid $19.5 billion in dividends during the first quarter, or $0.08 per share, an increase of 4% from the previous quarter and implying a 4% yield. Aramco will pay the same dividend next quarter. The board also approved the payment of one bonus share for every 10 owned.

Aramco also introduced a performance-linked dividend, which will return 50%-70% of annual free cash flow, net of the ordinary dividend and certain external investments, to shareholders. The added variable component is positive as it brings Aramco’s payout policies, and likely its yield, more in line with global integrated peers while allowing shareholders to share in the upside from higher oil prices. A start date for the program has not been announced and remains subject to board approval.

Capital spending in the quarter amounted to $8.7 billion, an increase from $7.6 billion the year prior due to increased project development. Aramco reiterated its belief in long-term oil demand and will continue to increase investments accordingly through the rest of the decade, in its traditional businesses and expanding its maximum sustainable capacity to 13.0 mmboe/d in 2027 from 12 mmboe/d.

We plan to incorporate the latest financial data in our model, but don’t anticipate a change to our fair value estimate of SAR 30 per share and wide moat rating.

Upstream EBIT decreased to $57.4 billion from $70.3 billion in the first quarter of last year.