Saudi Aramco Reports 23% Q3 Profit Drop Amidst Lower Oil Prices and Volumes

Aramco's royalty rates are structured as follows: 15% for Brent prices below $70 a barrel, 45% for prices between $70 and $100 a barrel, and 80% when Brent exceeds $100.

Saudi Aramco, the Saudi Arabian oil giant, has reported a 23% decline in its third-quarter net profit due to lower oil prices and reduced sales volumes. However, the company managed to surpass analyst expectations, providing some support for its shares.

For the quarter ending on September 30, Aramco’s net profit dropped to $32.6 billion, slightly exceeding the forecast of $31.8 billion by 12 analysts.

This decline in profit was primarily attributed to the decrease in oil prices and sales volumes, although it was partially offset by a reduction in production royalties, which are tied to Brent crude prices.

Aramco’s royalty rates are structured as follows: 15% for Brent prices below $70 a barrel, 45% for prices between $70 and $100 a barrel, and 80% when Brent exceeds $100.

Brent crude was trading at $83.7 at the time of the announcement, averaging $86.03 during the third quarter, compared to $97.48 in the same period the previous year.

Despite this decline, Aramco’s shares, which had already risen approximately 15% over the year, closed 0.45% higher at 33.6 riyals.

This comes in the wake of Chevron and Exxon Mobil reporting significant year-on-year profit decreases for the third quarter, reflecting the cooling of energy prices.

Saudi Arabia, as the world’s leading oil exporter and the de facto leader of OPEC, recently announced it would continue its voluntary oil output cut of 1 million barrels per day until the end of the year, with a review planned for the following month.

Aramco’s total hydrocarbon production for the quarter reached 12.8 million barrels of oil equivalent per day.

In addition to the decline in revenue from $144.99 billion in the previous year to $113.09 billion, royalty and other tax payments also fell from $24.3 billion to $14.7 billion.

The company declared a quarterly base dividend of $19.5 billion, irrespective of performance, with an additional $9.87 billion in performance-linked dividends scheduled for the fourth quarter, based on 2022 and the first nine months of 2023.

Saudi Aramco remains primarily owned by the Saudi government, with a 90.19% direct stake, while the sovereign Public Investment Fund (PIF) and its subsidiary Sanabil hold 4% each. This is of significant importance to the Saudi government, especially as it reported a budget deficit of about $9.5 billion in the third quarter, compared to a surplus of nearly $30 billion in the entire year of 2022.

Saudi Arabia is currently executing its Vision 2030 plan, aimed at expanding the private sector and diversifying the economy away from oil dependence.

Aramco recognizes the potential for increased energy demand in the mid- to long-term and continues to invest heavily through its largest-ever capital program.

While Aramco’s capital expenditure for the quarter rose from $9 billion to $11 billion compared to the previous year, the company adjusted its 2023 capex forecast to a range of $48 billion to $52 billion, down from the earlier range of $45 billion to $55 billion.

Aramco’s initial public offering (IPO) in late 2019 was the world’s largest, raising $25.6 billion, with subsequent share sales increasing the total to $29.4 billion.

The company is now considering a secondary share offering on the Riyadh stock exchange, potentially worth up to $50 billion, as part of its commitment to fund Vision 2030 through the Public Investment Fund.