(Bloomberg) — Aramco (2222.SR) held its quarterly dividend at $31 billion, despite lower profit, as Saudi Arabia’s multitrillion-dollar economic transformation plans widen the budget deficit.
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The company, majority owned by the Saudi state, is keeping the world’s biggest payout despite increasing signs of stress on earnings. The outlook for oil has darkened with concerns over demand, but the dividend is key for the government’s finances.
The test for how long the payout can be maintained will likely come early next year, when a special component that amounts to $43 billion a year is scheduled to start shrinking. Aramco is already paying out more than it’s earning, pushing the company into a net debt position for the first time in two years.
Aramco’s net income fell 15% to $27.6 billion in the quarter ended September compared with a year earlier, according to a statement Tuesday. Adjusted profit attributable to shareholders missed analysts estimates compiled by Bloomberg. Free cash flow — money from operations after capital expenditure — of $21.99 billion was lower than the total dividend.
The payout is crucial for the Saudi budget as crude prices remain far below the levels the kingdom needs to balance spending. Crown Prince Mohammed Bin Salman is pushing ahead with expensive ventures such as the futuristic project of Neom, but some plans — including Aramco’s own chemical plants — are being dialed back because of funding issues.
Aramco sold its crude at an average of $79.30 a barrel in the third quarter, $10 less than what it got a year ago. Its output has also been held at about 9 million barrels a day for over a year as part of OPEC+’s efforts to revive the market. The group on Sunday further delayed a plan to gradually unwind the cutbacks, as crude prices continue to struggle amid a fragile economic outlook.
The dividend and capital expenditure pushed Aramco into a net debt position of $8.9 billion during the quarter, compared with net cash of $27.4 billion a year ago and $2.3 billion as of the end of June.
The government directly owns more than 81% stake and the sovereign wealth fund another 16%.
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