Despite the profit dip, Aramco's shares saw a modest 0.64% rise to 25.00 riyals in morning trade, although they remain down 10.9% year-to-date.
The company confirmed a total dividend payout of $21.36 billion for the first quarter, which included $219 million in performance-linked dividends. This performance-linked component was introduced following the surge in oil prices in 2022 after Russia's invasion of Ukraine.
For decades, Saudi Arabia's economic growth has been heavily reliant on Aramco's substantial contributions, encompassing not only dividends but also royalties and taxes. Last year, oil revenues constituted 62% of the government's income. The International Monetary Fund (IMF) has estimated that Saudi Arabia requires an oil price of $92.3 per barrel this year to balance its budget.
Global Economic Slowdown Impacts Markets
The release of Aramco's financial results precedes a scheduled visit by US President Donald Trump to the kingdom on Tuesday. Trump's ongoing trade tensions with China have instilled unease in global markets, contributing to a fall in crude oil prices due to concerns about a potential global economic slowdown.
Aramco's CEO, Amin Nasser, acknowledged the impact of global trade dynamics on energy markets during the first quarter of 2025. "Global trade dynamics affected energy markets in the first quarter of 2025, with economic uncertainty impacting oil prices," Nasser stated. He emphasized that Aramco's results demonstrated the strength of its low-cost operational model.
"Such periods also highlight the importance of disciplined capital planning and execution while we continue to take a long-term view. In volatile times Aramco’s resilience underpins both our financial performance and our sustainable and progressive base dividend," Nasser added.
It's noteworthy that the full impact of President Trump's most recent sharp escalation of tariffs in early April was not reflected in these first-quarter results.
Lower Crude Prices Take a Toll
The global benchmark for crude oil, Brent, has largely trended downwards since reaching a high of $82.03 in January 2025, closing at $63.91 on Friday.
In March, Aramco had projected total dividend payouts of $85.4 billion for 2025, a significant decrease from the over $124 billion distributed last year, which was based on earnings from 2023 and 2024. The performance-linked payout, which amounted to $43.1 billion last year, saw a drastic reduction of approximately 98% as free cash flow diminished.
Vision 2030 and Economic Diversification
In recent years, the Saudi kingdom has been channeling substantial investments into projects aimed at diversifying its economy away from oil under the ambitious Vision 2030 program. This includes significant spending on infrastructure, such as the ongoing construction and renovation of 15 stadiums in preparation for the 2034 World Cup, a key event among several high-profile international competitions Saudi Arabia is set to host in the coming years.
However, amid the backdrop of lower oil prices and increasing costs, some of the kingdom's more ambitious projects, including the futuristic Neom city in the desert, have reportedly been scaled back. The focus has shifted towards prioritizing the completion of projects deemed essential for hosting these global sporting events over the next decade.
The Saudi government maintains a direct ownership stake of approximately 81.5% in Aramco, with its sovereign wealth fund, the Public Investment Fund (PIF), controlling an additional 16% stake.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, commented on the financial implications, stating, "The sharp fall in the oil price makes the financing outlook for both the fiscal shortfall and Vision 2030 significantly more challenging." She added that the weaker Aramco profits were already reflected in a wider budget deficit reported in the first quarter.
Aramco's free cash flow for the first quarter stood at $19.2 billion, a 15.8% decrease compared to the same period last year. Performance-linked dividend payouts are directly tied to the company's free cash flow.
Capital expenditure for the first quarter reached just over $12.5 billion, marking a 15.9% increase year-on-year. Aramco had previously outlined capital investments, including both capex and external investments, in the range of $52 billion to $58 billion for 2025, compared to the $50.4 billion spent in the previous year.
Opec+ Output Adjustments
The Saudi-led Opec and its allies, including Russia, collectively known as Opec+, have been implementing output cuts since 2022 to support oil prices in the face of increasing production from other global producers. The kingdom, which boasts a production capacity of around 12 million barrels per day (bpd), has undertaken the largest share of these production cuts.
However, Opec+ recently agreed to increase output by 411,000 bpd in both May and June. This adjustment will raise Saudi Arabia's production to nearly 9.37 million bpd, up from approximately 9 million bpd prior to May.
CEO Nasser has previously highlighted the kingdom's significant spare output capacity, the largest globally, stating that it could be activated within a matter of weeks if needed.
Historically, President Trump has publicly urged Riyadh and Opec to lower oil prices, a stance he also took during his first term in office. He has also suggested that Riyadh should increase its investments in the US to $1 trillion, following the kingdom's stated intention to invest $600 billion in expanded investment and trade with the US over the next four years.