Low energy prices sting Aramco profits, squeeze Saudi development plans

Dubai, Mar 4 (AP) Saudi Arabia's state-owned oil giant Aramco reported a USD 106.25 billion profit in 2024 on Tuesday, 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 digging for the USD 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 USD 600 billion in investments in the US 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 toward increasing production means Saudi Arabia likely will need to take on new debt to fund the crown prince's vast ambitions.

Earnings stung by lower oil prices A filing on Riyadh's Tadawul stock exchange showed Aramco, formally known as the Saudi Arabian Oil Co, had revenues of USD 436 billion in 2024. That compares to USD 440.88 billion in 2023.

Aramco reported a USD 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.

Stock in Aramco traded just over USD 7 a share Tuesday, down from a high over the last year of USD 8.71. It has fallen over the past year as oil prices have dropped. Benchmark Brent crude traded Tuesday at around USD 70 a barrel, down over 15 per cent over the last year.

Aramco has a market value of USD 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 USD 21.36 billion for the fourth quarter, which includes a far-smaller performance dividend of USD 220 million. The company expects to pay dividends of USD 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 3 million barrels of additional crude oil a day. Each additional million barrels a day would mean USD 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.” Geopolitical headwinds squeeze kingdom's coffers 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.” The OPEC+ decision follows criticism by Trump of the cartel as well.

Experts suggest the price per barrel for oil could sink to the USD 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 USD 10 rise in the price of a barrel of oil, Saudi Arabia stands to make an additional USD 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) NPK NPK

Source: PTI