Aramco will introduce an additional dividend, potentially boosting payouts for Saudi Arabia’s government by billions of dollars just as weaker oil prices edge the state’s budget into a deficit.
The stock surged as much as 7.2% in early trading, before trimming gains to 3.7%, still taking it to the highest level since September.
The new dividend will be “in the amount of 50%-70%” of Saudi Aramco’s annual free cash flow, net of the base payout and other amounts including external investments, the world’s largest energy company said on Tuesday, shortly before it released earnings. The amount will be “determined with the annual results.”
The state-controlled company made a net profit of $31.9 billion for the first quarter, slightly below analysts’ expectations and down 19% from a year earlier. Free cashflow was $30.9 billion and the dividend was maintained at $19.5 billion.
Aramco’s free cashflow soared, along with oil prices, to almost $149 billion last year, easily covering the annual dividend of $75.8 billion, which is already the largest for any listed company and a crucial source of funding for the Saudi government.
The kingdom reported a $770 million fiscal deficit for the first quarter as spending on public sector salaries and massive projects to diversify the economy from energy increased. Growth slowed to 3.9% year-on-year, compared with 10% in the first quarter of 2022.
Oil prices have dipped sharply since the middle of last year after the global economy weakened and central banks raised interest rates to combat inflation. Brent averaged $82 a barrel between January and March, down from almost $100 for 2022. The benchmark has since fallen further to around $77.
Aramco, based in Dhahran in eastern Saudi Arabia, is targeting capital expenditure of $45 billion to $55 billion for 2023.
The Saudi Arabian government owns 90% of Aramco’s stock directly, with a further 8% held by the sovereign wealth fund. The shares have climbed 16% this year, outperforming those of Western Big Oil rivals such as Shell Plc and Exxon Mobil Corp.
The country’s de facto ruler, Crown Prince Mohammed Bin Salman, has said the government may sell more shares in Aramco through a secondary offering.
(Updates with stock performance.)