(Bloomberg) — Saudi oil giant Aramco (2222.SR, 2223.SR) maintained its $31 billion dividend to help shore up government coffers despite rising debt.
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The company, majority owned by the Saudi state, maintains the world’s largest payout even with growing signs of tension on its balance sheet. The outlook for oil has become bleaker on concerns about demand, but the dividend is crucial for public finances.
The test for how long the payout can be sustained will likely come early next year, when a special component, which amounts to about $10 billion per quarter, will start to shrink. Aramco is already paying more than it earns as Saudi Arabia’s ambitious economic transformation plans widen the government’s budget deficit. It has put the company in net debt for the first time in two years.
Aramco had net debt of $8.9 billion during the quarter, compared with a net cash position of $27.4 billion a year ago and $2.3 billion at the end of June. Free cash flow (money from operations after capital expenditures) of $21.99 billion in the third quarter was lower than the total dividend.
The payout is crucial for the Saudi budget as crude oil prices remain well below the level the kingdom needs to balance spending. Crown Prince Mohammed Bin Salman is pushing ahead with expensive ventures such as the futuristic Neom project, but some plans – including Aramco’s own chemical plants – are being scaled back due to financing problems.
The company’s net profit fell 15% to $27.6 billion in the quarter ended September from a year earlier, it said in a statement Tuesday. Adjusted profit attributable to shareholders missed Bloomberg analyst estimates.
It sold crude oil for an average of $79.30 a barrel in the third quarter, $10 less than a year ago. Production has been kept at around 9 million barrels per day for more than a year as part of OPEC+’s efforts to revive the market. The group on Sunday further postponed a plan to gradually phase out cuts as crude oil prices continue to struggle amid a fragile economic outlook.
Aramco shares fell as much as 0.7% in Riyadh. They are down 17% this year, underperforming global oil giants like Exxon Mobil Corp. and Shell Plc.
