Saudi Aramco's third-quarter profit falls on lower crude prices

Saudi Aramco, the world's largest oil-producing company, has reported a 23 per cent drop in third-quarter net profit amid the kingdom's voluntary production cuts and a fall in crude prices.

Net profit after zakat for the three-month period to the end of September fell to 122.2 billion Saudi riyals ($32.58 billion), from 159 billion riyals in the same period in the previous year, the state oil company said on Tuesday in a filing to the Tadawul stock exchange, where its shares are traded.

Revenue during the period also declined by 22 per cent to 424 billion riyals, Aramco said.

“Our robust financial results reinforce Aramco’s ability to generate consistent value for our shareholders, and we continue to identify new opportunities to evolve our business and meet the needs of customers,” said Aramco president and chief executive Amin Nasser.

Brent, the benchmark for two thirds of the world’s oil, surged to about $140 a barrel after the invasion of Ukraine last year, but has since given up most of its gains due to resilient Russian crude supply and fuel demand concerns.

However, the international benchmark rose by more than 22 per cent in the third quarter as Opec+ production cuts, combined with voluntary output reductions by Saudi Arabia and Russia, tightened crude supplies.

On Sunday, Saudi Arabia said it would continue with its voluntary cut of one million barrels per day until December 2023 amid continued volatility in the crude market due to the Israel-Gaza war.

The kingdom’s production in December will be about nine million bpd, the state-run SPA reported, citing a source from the Energy Ministry.

“This voluntary cut decision will be reviewed next month to consider extending the cut, deepening the cut or increasing production,” the source said.

Moscow will also keep in place export cuts of 300,000 bpd, which came into effect in September and October, until the end of the year.

The company said its average realised crude oil prices in the third quarter fell to $89.30 a barrel from $101.70 a barrel in the same period a year earlier.

Under the World Bank’s baseline forecast, oil prices are projected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year amid a global economic slowdown.

Earlier this month, Goldman Sachs maintained its oil price forecast of $100 a barrel by June 2024 on supply cuts from Saudi Arabia and Russia.

Swiss lender UBS expects Brent crude to trade in the range of $90 to $100 a barrel over the next 12 months.

Aramco, whose shares have gained about 14 per cent on the Tadawul this year, said it would pay a base dividend of $19.5 billion for the third quarter.

Its shares were up 0.3 per cent on Tuesday at 33.55 riyals.

Its first performance-linked dividend distribution of $9.9 billion was paid in the third quarter and the second distribution of about $9.9 billion will be paid in the fourth quarter based on combined full-year and nine-month results for 2022 and 2023, respectively.

The dividends “reflect the bullish outlook Aramco still has, [aligning with the] voluntary cuts and intervention by Opec + members”, Mazen Salhab, chief market strategist at BDSwiss Mena, told The National.

“We think that Aramco remains committed to expansion, acquisition with more diversification in energy sector despite the challenges ahead from China’s weakening demand and [the] global energy transformation,” he said.

In September, Aramco signed agreements to acquire a minority stake in LNG company MidOcean Energy.

Competition for LNG has increased since Russia's invasion of Ukraine last year, with Europe importing record volumes of the supercooled fuel to replace Moscow's gas supplies.

“During the third quarter we agreed to make our first international investment in liquefied natural gas to capitalise on rising LNG demand, and announced our intention to enter the South American retail market,” Mr Nasser said.

“These planned investments demonstrate the scale of our ambition, the broad scope of our activities and the disciplined execution of our strategy.”

Aramco's capital expenditure in the third quarter rose to 41.35 billion riyals ($11.02 billion) from 33.9 billion riyals a year earlier.

Free cash flow was 76.28 billion riyals ($20.33 billion) in the latest reported quarter, compared with 168.62 billion riyals in the third quarter of last year.

The company plans to continue investing across the hydrocarbon chain and adopt technology to optimise operations and support the development of emerging energy solutions, Mr Nasser said.

“It is an approach rooted in our belief that a balanced and realistic energy transition plan should consider the needs of all geographies, in order to avoid disparities between global energy consumers.”