DUBAI: Saudi oil giant Aramco signalled on Tuesday it will slash its dividend payouts by nearly a third this year, meaning fewer funds for the kingdom as it races to complete several mammoth projects and possibly faces a wider budget deficit.
Aramco said it expected to declare total dividends of $85.4 billion in 2025, down sharply from last year’s payout of over $124 billion, which it said was, however, based on 2023 and 2024 earnings.
The Saudi government directly owns 81.5% of Aramco, while its sovereign wealth fund controls an additional 16%. It has long leaned on the group’s payouts to invest in myriad sectors as it tries to wean the economy off oil. Those efforts include building or renovating 15 stadiums for the 2034 World Cup, the most high-profile of several showpiece events the kingdom will host.
Last year’s payouts included about $43.1 billion in performance-linked dividends, a mechanism introduced in 2023 on top of base dividends that are paid regardless of results.
On Tuesday the board said it intended to pay a performance-linked dividend of just $220 million in the first quarter and said it expected these to total $900 million for the full year, which would be a 98% decline from 2024.
The record payouts in 2024 were “essential for limiting both the shortfall last year and the building up in debt,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. She estimated Saudi Arabia’s fiscal deficit would widen to 4% of gross domestic product in 2025 from 2.8% last year.
JPMorgan analysts see no special Aramco dividend this year
“The budget looks to pull back spending, and there were already some signs of a fall in government spending” in the fourth quarter, Malik said.
Saudi Arabia’s $925 billion Public Investment Fund is driving a massive spending drive aimed at overhauling the economy. Its Aramco stake implies it received dividends of almost $20 billion last year.
Aramco on Tuesday reported a fall of more than 12% in net profit to $106.2 billion in 2024, while free cash flow declined almost 16% to $85.3 billion.
Average realised oil prices fell to $80.2 from $83.6 in 2023, according to a company presentation.
“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,” the company said in a stock exchange filing.
Possible output boost
This year, Aramco should benefit from higher crude demand and plans by OPEC+ oil-producing nations to gradually raise output starting in April, Aramco CEO Amin Nasser said.
“Definitely any additional production will benefit us, we have the additional capacity … this is a cyclical market, you need to be resilient,” he told reporters.
Aramco has been pumping some 9 million barrels per day (bpd) of crude – roughly three quarters of its capacity – since mid-2023, when Saudi Arabia announced its biggest output reduction in years on top of earlier cuts agreed with allied producing countries.
Nasser said 3 million bpd of spare capacity could be activated in a matter of weeks if needed.
“We can manage. We have a prudent capital programme, and a flexible programme… But the upside is with Saudi Aramco,” he said.
Aramco’s performance-linked dividends were announced following bumper profits in 2022, when oil prices soared after Russia invaded Ukraine.
“Last year, the dividends – the performance-linked dividends – were covering two years, not just 2023, they were covering 2022 and 2023, so that’s why you saw an increase,” Chief Financial Officer Ziad Al-Murshed told reporters.
Citi analysts said in a note a drop in such dividends was hard to avoid given a potentially challenging outlook for oil markets this year and expressed doubts whether markets could absorb higher production without lower prices.
JPMorgan, which last month forecast no performance-linked dividends from Aramco for 2025, said on Tuesday it expected a drop in dividend yield to 4.9% this year from more than 6% in 2024.
That is lower than other oil majors but is justified by higher returns and Aramco’s ability to defend its payouts amid lower oil prices, JPMorgan analysts said.
