Oil giant Saudi Aramco posts 19% drop in first-quarter profit

DUBAI, United Arab Emirates — Saudi state oil giant Aramco on Tuesday reported a 19% drop in its first-quarter earnings, recording net income of $31.9 billion down from $39.5 billion the previous year amid falling oil prices.

Analysts expected to see a dip in net profit this quarter compared to the previous year, as inflation and rising interest rates pressure global demand and stoke fears of a recession. Still, Aramco’s net income beat expectations of $30.5 billion, which was forecast by analysts polled by Reuters.

The company’s net profit was up 3.75% from the fourth quarter. It said that the weaker earnings result was offset by lower taxes and higher finance and other income. Shares rose 3.2% in early deals in Riyadh Tuesday.

Aramco’s first-quarter dividend, which was increased in the fourth quarter to $19.5 billion, will be paid in the second quarter, the company said. It reported its quarterly cash flow from operating activities at $39.6 billion and free cash flow at $30.9 billion, both of which were slightly up on the previous year.

Aramco, which is the world’s largest oil exporter, also revealed Tuesday that it will begin paying a performance-linked dividend on top of that $19.5 billion, and will target between 50% and 70% of its free cash flow figure. That dividend will be paid quarterly and at the sole discretion of the company’s board, depending on how the company performs, it said.

Aramco CEO Amin Nasser emphasized the value of its downstream strategy, which has seen it invest heavily in petrochemical and other operations.

“We are leveraging cutting-edge technologies to increase liquids-to-chemicals capacity and meet anticipated demand for petrochemical products,” Nasser said.

Nasser stressed the continued importance of hydrocarbons for the world’s energy needs, adding that “we believe oil and gas will remain critical components of the global energy mix for the foreseeable future.”

He said the company is “moving forward” with its capacity expansion, and that its “long-term outlook remains unchanged.”

Aramco posted a record net income of $161.1 billion for 2022 in March, up by 46.5% over the year.

Saudi Arabia’s Basic Industries Corporation (SABIC), which is one of the world’s largest petrochemical companies and is 70% owned by Aramco, this month saw its first-quarter net profit plunge 90% and warned that margins would remain under pressure amid new capacities, rising interest rates and uncertainty over global growth.

Oil and gas prices surged at the start of 2022, with Western sanctions on Russia following its full-scale invasion of Ukraine steadily tightening access to crude supplies. But this year, so far, is telling a different story for prices.

The price of international oil benchmark Brent crude is down 9% year-to-date and down more than 17% year-on-year. That fall stems from a combination of economic concerns.

Earlier this month, the U.S. Federal Reserve hiked interest rates by a quarter of a percentage point, raising investors’ concerns that slower economic growth could dent energy demand.

“Pressure from anti-inflationary action undertaken by both the U.S. Fed and the ECB [European Central Bank], have resulted in lackluster demand growth for most of the OECD, with recession risks lying ahead,” Citi’s global head of commodities research Ed Morse wrote in a note this week.

— CNBC’s Lee Ying Shan contributed to this report.