Aramco's extra payout not linked to oil prices: exec

Ziad Al-Murshed, Executive Vice President & CFO, Saudi Aramco

The new mechanism adopted by Saudi Aramco for additional dividends is not linked to a specific level of oil prices, but rather to free cash flows, Ziad Al-Murshed, Executive Vice President & CFO, Saudi Aramco, said in an interview with Al-Arabiya TV. 

The new mechanism aims to share more profit with shareholders.  

 The company's priority for allocating cash flows is clear and has not changed since the initial public offering. It is about keeping capital expenditure for business sustainability, maintaining sustainable and increasing dividends, capital spending for business growth, then reducing leverage ratio and/or distributing extra dividends.  

He noted that Aramco has significantly reduced its debt over the past two years and is currently focusing on additional distributions. 

 Al-Murshed also stated that the increase in additional dividends comes in two forms. First, an increase in (sustainable and increasing) base dividends, which were raised in the fourth quarter of 2022 by 4%, from SAR 70 billion to SAR 73 billion and maintained for the first quarter of 2023. Second: additional dividends. 

The company now has a balanced framework for dividends, which allows payout of base dividend that are sustainable and growing in a manner that provides protection for investors during years of muted performance. It also provides a mechanism for sharing profit with shareholders during years of strong performance through performance-linked payouts. 

Al-Murshed also pointed out that Aramco has proven its ability to distribute sustainable dividends even during the toughest times, i.e., the COVID pandemic. He added that the company was also able to boost dividends by 4% for Q4 2022 and maintain this level in Q1 2023. 

To make it simpler, Al-Murshed gave an example, assuming that the company’s annual free cash flows reach $100 billion in a certain year, basic dividends will stand at $78 billion, while $2 billion will be deducted from the remaining $22 billion as overseas investments. Out of the $20 billion amount, a 50-70% dividend, representing around $12 billion (60% on average) will be paid. Accordingly, the total dividends (the basic and performance-linked dividends) during that year will reach $90 billion. 
 

 He added that basic or additional payouts are decided by the board. They depend on the company’s financial position and its ability to fund its commitments, including capital growth plans. This is all set according to Saudi Aramco’s announced dividend policy.  
 

 The world’s largest oil exporter has only one type of shares. Dividends are paid to all shareholders based on the same eligibility, including the Public Investment Fund (PIF). 
 

Saudi Aramco plans to maintain the current dividends beyond 2024 and to raise these payouts going forward. It eyes sustainable and increasing dividends, in addition to the performance-linked dividends.  
 

Earlier in May, Saudi Aramco announced plans to introduce a mechanism for performance-linked dividends, in addition to the base dividend it currently distributes. It targets such performance-linked dividends to range between 50% and 70% of Saudi Aramco Group’s annual free cash flow, net of the base dividend and other amounts including external investments, to be determined with the annual results, Argaam reported.