Saudi Aramco promises performance-linked dividends despite 20% fall in profits

First-quarter profits at oil group Saudi Aramco dropped by almost a fifth after oil prices slumped, the company said on Wednesday, although its share price jumped after it promised to introduce performance-linked dividends.

The company reported $31.9bn in net income for the period, 19 per cent lower than the same period last year. However it also said it planned to introduce performance-linked dividends in addition to base dividends, with a target payout of 50 to 70 per cent of annual free cash flow. The company’s shares rose by almost 4 per cent on the news.

Increasing dividends would boost revenues for the Saudi government, which owns over 90 per cent of Aramco shares.

The first-quarter results slightly exceeded analyst expectations. The fall in profits year on year was driven by the decline in oil and gas prices compared with 2022. Results from European oil majors, including Shell, showed that they had been able to offset more of that decline through their larger trading operations, which had a very strong first quarter.

Aramco made record profits of $161bn in 2022 and increased its quarterly payout to shareholders to almost $20bn as oil prices soared after Russia’s full invasion of Ukraine.

The company said it remained well positioned despite the decline in prices.

“Global crude oil prices declined in the first quarter of 2023 mainly driven by macroeconomic events contributing to market volatility. Aramco believes it is well positioned to withstand fluctuating commodity prices through its low-cost upstream production and strategically integrated downstream operations,” it said in a statement.

The company said it would move forward with capacity expansion and downstream investments to meet anticipated demand for petrochemicals.

Unlike international peers who pledged to gradually cut oil output to reduce emissions, Aramco is increasing its maximum crude oil production capacity from 12mn b/d to 13mn b/d while investing in lower carbon energy.

“We are also moving forward with our capacity expansion, and our long-term outlook remains unchanged as we believe oil and gas will remain critical components of the global energy mix for the foreseeable future,” its chief executive Amin Nasser said in the statement.

“Our intention is to continue to be a reliable energy supplier with the ability to provide more sustainable energy solutions, supporting efforts to achieve an orderly energy transition.”

Additional reporting by David Sheppard in London