Low energy prices sting Aramco profit

Saudi Arabia’s state-owned oil giant Aramco reported a profit of US$106.25 billion for year 2024, down 12 per cent from the prior year as lower energy prices now squeeze the kingdom’s multi-trillion-dollar development plans.

Already, Saudi’s de facto ruler Crown Prince Mohammed bin Salman has been pushing a US$500 billion project to build the straight-line city of NEOM in Saudi Arabia’s western desert on the Red Sea. He also will need to build tens of billions of dollars’ worth of new stadiums and infrastructure ahead of the kingdom hosting the 2034 FIFA World Cup.

Meanwhile, he’s also pledged potentially US$600 billion in investments in the United States to entice President Donald Trump to the kingdom on his first foreign trip as president. Saudi Arabia is also the possible venue for a meeting between Trump and Russian President Vladimir Putin over Moscow’s war on Ukraine.

All that and OPEC+ moving towards increasing production means Saudi Arabia likely will need to take on new debt to fund the crown prince’s vast ambitions.

A filing last week on Riyadh’s Tadawul stock exchange showed Aramco, formally known as the Saudi Arabian Oil Company, had revenues of US$436 billion in 2024. That compares to US$440.88 billion in 2023.

Aramco reported a US$121 billion annual profit in 2023, down from its 2022 record due to lower energy prices as well.

“The decrease was primarily driven by lower revenue and other income related to sales, higher operating costs, as well as lower finance and other income,” Aramco said in its filing.

Aramco has a market value of US$1.74 trillion, making it the world’s sixth-most valuable company behind Apple, Microsoft, NVIDIA, Amazon and Alphabet, which owns Google.

Aramco will pay dividends of US$21.36 billion for the fourth quarter, which includes a far-smaller performance dividend of US$220 million. The company expects to pay dividends of US$85.4 billion this year, which is far lower and will further erode cash that Saudi Arabia’s monarchy can expect for the year.

Speaking to analysts on a call Tuesday afternoon, Aramco CEO and President Amin H. Nasser said the company had capacity to bring online three million barrels of additional crude oil a day. Each additional million barrels a day would mean US$12 billion in revenue a year, he said.

“Global oil inventory levels have declined to around five-year lows, which means there are potential risks related to geopolitical instability and volatility,” Nasser said, suggesting crude prices could rise over time due to that. “Against this backdrop, Aramco remains ready for all scenarios,” he said

The Aramco results come as OPEC+, an alliance of the oil cartel and other energy-producing states, met online Monday and agreed to proceed with an increase in oil production starting in April. It’s the first oil production increase by the group since 2022 and likely will push down oil prices further. The increase slowly will add up to 2.2 million barrels of additional crude oil a day over the coming months.

“This is not the opening of the floodgates,” wrote Bjarne Schieldrop, the chief commodities analyst at SEB Research. “It is about lowering the oil price to a level that is acceptable for Putin, (Prince Mohammed), Trump, US oil companies and the US consumers.”

Experts suggest the price per barrel for oil could sink to the US$60 range, further tightening budgets in Saudi Arabia.

“The news that Aramco ... will cut its dividend payout this year will put a dent in the kingdom’s public finances and, together with a likely decline in the state’s oil revenues, may ratchet up pressure for more fiscal tightening,” wrote James Swanston, the senior Middle East and North Africa economist at Capital Economics.

Saudi Arabia’s vast oil resources, located close to the surface of its desert expanse, make it one of the world’s least expensive places to produce crude. For every US$10 rise in the price of a barrel of oil, Saudi Arabia stands to make an additional US$40 billion a year, according to the Institute of International Finance.

The Saudi government owns the vast majority of the firm’s shares. Saudi Aramco publicly listed a sliver of its worth back in late 2019 and has weighed offering more shares publicly.

AP