The Saudi oil giant Aramco announced on Tuesday a net profit of $29.07 billion for the second quarter, a slight decrease compared to the same period last year, attributed to lower production levels.
Decrease in Profits
The 3.4% drop in profit “primarily reflects the impact of lower crude oil sales volumes and weaker refining margins,” the company stated in a press release on the Saudi stock exchange.
Production Levels
Saudi Arabia, the world’s largest crude oil exporter, is currently producing around nine million barrels per day (bpd), significantly below its capacity of 12 million bpd.
In June, production averaged 8.8 million bpd, according to Riyadh-based consultancy Jadwa Investment. This relatively low figure is due to cuts dating back to October 2022, when the OPEC+ group of oil producers, co-led by Riyadh and Moscow, announced a two million bpd reduction to boost prices.
Further Production Cuts
In April 2023, several OPEC+ members announced additional cuts exceeding one million bpd, and in June 2023, Riyadh announced a voluntary extra reduction of one million bpd. “Production will remain at similar levels at least until October,” when an OPEC+ agreement announced in June 2024 allows for “gradual monthly increases,” Jadwa specified.
Economic Importance of Aramco
Aramco is the crown jewel of Saudi Arabia’s economy and the main source of revenue for Crown Prince Mohammed bin Salman’s Vision 2030 reform program, aimed at preparing the kingdom for a post-oil era. The government owns approximately 81.5% of Aramco, one of the world’s largest companies by market capitalization.
Revenue Generation
Aramco’s partial IPO in 2019, the largest in history, raised $29.4 billion, and a secondary offering this year of nearly 1.7 billion shares brought in $12.35 billion. Last year, Aramco announced it would begin paying a performance-based dividend in addition to its base dividend.
In May, the company declared a base dividend for the first quarter totaling $20.3 billion and a performance-linked dividend of $10.8 billion to be paid in the second quarter.
Record Profits and Recent Declines
Aramco posted record profits in 2022 after Russia’s invasion of Ukraine drove up oil prices, enabling Saudi Arabia to record its first budget surplus in nearly a decade. However, this cash cow saw its profits drop by a quarter last year due to falling oil prices and production cuts, with first-quarter profits this year down by 14.5%.
Capacity Expansion Halted
In January, Aramco announced it had been ordered to abandon plans to increase its production capacity to 13 million bpd from the current 12 million bpd. Analysts suggested this surprising announcement might reflect doubts about demand, although Energy Minister Prince Abdulaziz bin Salman said it was driven by the transition to cleaner fuels.
Commitment to Emissions Reduction
Saudi Arabia has pledged to reach net-zero carbon emissions by 2060, a commitment met with skepticism by environmentalists. Aramco has committed to achieving net-zero carbon emissions by 2050, excluding emissions from customers using its products.