Aramco’s $106 Billion Profit Decline: Implications for Saudi Arabia’s Development Plans
Aramco reported a $106.25 billion profit for 2024, a 12% drop due to reduced energy prices affecting Saudi Arabia’s extensive development projects. The company plans substantial dividends while facing challenges from OPEC+’s production increase. CEO Amin H. Nasser indicates readiness for future crude price fluctuations. Financial pressures may necessitate new debt for the kingdom’s ambitious plans.
Saudi Arabia’s Aramco announced a profit of $106.25 billion for 2024, marking a 12% decline from the previous year, primarily due to lower energy prices impacting the kingdom’s ambitious multi-trillion-dollar development initiatives. Crown Prince Mohammed bin Salman continues investing in large-scale projects, including the $500 billion NEOM city and new infrastructure for the 2034 FIFA World Cup. This economic environment may compel Saudi Arabia to incur additional debt to finance these expansive plans.
In its report, Aramco, formally recognized as the Saudi Arabian Oil Co., indicated revenues of $436 billion for 2024, a slight decrease from $440.88 billion in 2023. The firm’s net profit, previously at $121 billion in 2023, was greatly affected by declining energy prices. Aramco cited lower sales revenue, increased operational costs, and diminished finance and other income as contributing factors to this downturn.
Aramco’s stock traded at approximately $7 per share, down from a yearly high of $8.71, reflecting the downward trend in oil prices which currently hover around $70 a barrel. Despite this, Aramco remains the world’s sixth-most valuable corporation, with a market capitalization of $1.74 trillion. The firm plans to distribute dividends totaling $21.36 billion for the fourth quarter, alongside a reduced performance dividend of $220 million, significantly impacting the cash flow available to Saudi Arabia’s monarchy.
During a recent analyst call, Aramco’s CEO Amin H. Nasser highlighted the company’s capacity to increase production by 3 million barrels of crude oil daily, translating to potentially $12 billion in additional annual revenue. He also remarked that declining global oil inventories pose risks associated with geopolitical instability, indicating crude prices might increase in the future. “Against this backdrop, Aramco remains ready for all scenarios,” Nasser commented.
As OPEC+ agreed to a production increase commencing in April, this marks the first rise since 2022, likely causing further drops in oil prices. The decision aims to lower prices to appease various political and economic stakeholders, including U.S. President Donald Trump. Saudi Arabia’s oil production costs remain among the lowest globally; every $10 increase in oil prices is projected to generate an additional $40 billion in yearly revenue for the kingdom, according to the Institute of International Finance.
Although the Saudi government retains significant shares in Aramco, the company publicly listed a portion of its equity in late 2019 and is weighing options for further offerings, highlighting its strategic financial maneuvers as it navigates fluctuating market conditions.
In conclusion, Aramco’s recent profit decline underscores the challenges posed by lower oil prices to Saudi Arabia’s expansive development plans. As the nation continues its ambitious projects under Crown Prince Mohammed bin Salman, the need for additional debt may arise. Moreover, OPEC+’s increased production approach could exacerbate the volatility in oil prices, affecting Aramco’s revenues and dividends, ultimately influencing Saudi Arabia’s financial landscape.
Original Source: www.castanet.net
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