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The government-owned Saudi Arabian Oil Company (Aramco) has announced plans to cut its dividend by one-third for the calendar year 2024, citing a substantial decline in operational income and profits due to subdued crude oil prices. The reduction in dividend payouts could pose a challenge to the Kingdom’s widening budget deficit and hinder the progress of several infrastructure projects currently in various stages of completion.
Saudi Aramco has projected total dividend payouts to reach US$ 85.4 billion for 2024, a decline of over 31 percent compared to the US$ 124 billion distributed in the previous year. Aramco’s dividends represent a significant source of direct income for the Saudi government. A decline in these payouts may exacerbate fiscal challenges, potentially impacting the completion of several major infrastructure projects scheduled for the coming years.
Aramco reported a 12.5 percent decline in net income, which fell to US$ 106.2 billion for 2024, compared to US$ 121.3 billion in the prior year. Cash flow from operating activities dropped to US$ 135.7 billion in 2024 from US$ 143.4 billion in 2023. Meanwhile, the company’s free cash flow plunged to US$ 85.3 billion in 2024, down from US$ 101.2 billion the previous year. For the October-December 2024 quarter, the board declared a base dividend of US$ 21.1 billion, marking a 4.2 percent year-on-year increase. This dividend is scheduled to be paid by the end of the March 2025 quarter.
Amin H. Nasser, President and Chief Executive Officer of Saudi Aramco, stated, “Our strong net income and increased base dividend illustrate Aramco’s exceptional resilience and ability to leverage its unique scale, low cost, and high levels of reliability to deliver industry-leading performance for our shareholders and customers.”
Saudi Arabia’s widening fiscal deficit
Total performance-linked dividend payouts for the calendar year 2024 amounted to approximately US$ 43.1 billion, under a mechanism introduced in 2023 that supplements base dividends paid regardless of financial results. On Tuesday, the board announced its intention to pay a performance-linked dividend of just US$ 220 million in the March quarter, bringing total payouts to US$ 900 million for the full year—a sharp 98 percent decline compared to 2024.
Analysts believe that the record payouts in 2024 were "essential for limiting both the shortfall last year and the buildup in debt." Saudi Arabia’s fiscal deficit is projected to widen to 4 percent of gross domestic product (GDP) in 2025, a significant increase from 2.8 percent recorded last year.
Capital investment
In 2024, Aramco continued implementing the largest capital program in its history, with total capital expenditures amounting to US$ 50.4 billion—an increase of 19.3 percent compared to the previous year. This rise was primarily driven by ongoing development activities across multiple crude oil increments and several gas projects, including the Jafurah unconventional development.
The company’s guidance for total capital investment in 2025 is projected to range between US$ 52 billion and US$ 58 billion, excluding US$ 4 billion in project financing. In a statement, Aramco said, “Progress remains on track to deliver our growth strategy across upstream and downstream, with potential additional operating cash flows of US$ 9–10 billion from growth in Aramco’s upstream gas business, and US$ 8–10 billion from growth in its downstream business by 2030.”
Aramco’s spare capacity provides flexibility to address potential oil demand growth. If fully utilized, the company’s one million barrels per day (bpd) of existing spare capacity could generate an additional US$ 12 billion in operating cash flow, based on 2024’s average prices. Global crude oil demand reached record levels in 2024, and CEO Amin H. Nasser anticipates further demand growth in 2025.
“With reliable and more sustainable energy essential to global economic growth, we continue to make progress on projects to maintain our maximum sustainable crude oil capacity, expand our gas capabilities, achieve greater integration of our upstream and downstream businesses to capture additional value, and help mitigate greenhouse gas emissions,” Nasser said. He added, “We are also adopting and deploying artificial intelligence (AI) technologies and solutions at scale across our operations, unlocking greater efficiencies and value creation throughout our business. Capital discipline remains at the core of Aramco’s strategy, enabling us to deliver growth and capture value across both conventional and new energy solutions.”
Future strategy
Aramco aims to maintain its position as the world’s largest crude oil producer by volume. Its extensive reserves, robust operational capabilities, and ample spare capacity enable the company to scale up production in response to rising demand. Aramco anticipates that global demand for crude oil will continue to grow for many years. To meet this demand, industrywide investment will be required, including new oil discoveries and developments to counter the natural decline in output from existing fields.
The company plans to continue investing in crude oil exploration and production across oil price cycles to address this anticipated growth in global demand. Aramco believes its low lifting costs, low capital intensity, and reduced upstream carbon intensity position it uniquely to capitalize on these investments while responding to the increasing pressure on the oil and gas industry to minimize environmental impact. Additionally, Aramco is pursuing a variety of initiatives to reduce its upstream carbon intensity by at least 15 percent by 2035, further demonstrating its commitment to sustainable operations.
Ownership
Saudi Aramco is 81.5 percent owned by the Saudi government, with an additional 16 percent stake held by the government's sovereign wealth fund. The company has long relied on the group’s payouts to fund investments in various sectors as part of efforts to diversify the economy away from oil. These initiatives include building or renovating 15 stadiums for the 2034 World Cup, the most high-profile of several showcase events the Kingdom is set to host.
Reports indicate that Saudi Arabia's US$ 925 billion Public Investment Fund (PIF) has been driving significant spending momentum aimed at transforming the economy. The Fund’s stake in Aramco implies it received dividends totalling nearly US$ 20 billion last year. In 2024, Aramco reported a decline of over 12 percent in net profit to US$ 106.2 billion, while free cash flow dropped by nearly 16 percent to US$ 85.3 billion.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
