النمو أم الأرباح، أرامكو قد تضطر للاختيار

In the coming weeks, media frenzy around the FY2025 results of Saudi oil and gas giant Saudi Aramco will intensify. The world’s largest listed oil company is ready to present its 2025 results, and analysts will be focusing on the company’s dividends, but they should be watching other strategic issues, however. The Saudi giant’s financial arc in 2024–2025 shows the story of a behemoth caught between two irreconcilable demands: it needs not only to act as the Kingdom’s principal fiscal engine but also to sustain the capital intensity needed, as it needs to remain a credible global energy operator. As Aramco reported last year that its net income for 2024 decreased by approximately 12% to about $106 billion, compared with $121 billion in 2023, the first warning signs emerged but seem not to have been taken into account until now. Still, no real worries spread through the market, as Aramco indicated that the fall in revenues was driven largely by weaker crude and refined product prices. Still, when looking back, it has become clear that this contraction has set the stage for a defining rupture in the company’s financial model. The question now is what will be there for FY2025? The tension in the company’s system is visible, as shown by the dramatic recalibration of Aramco’s dividend policy. At present, based on current expectations and statements, Aramco’s 2025 full-year dividends are expected to be $85.4 billion, still 30% lower than the $124 billion paid in 2024. These lower figures are not driven by managerial caprice but by declining free cash flow, lower oil prices, and an increasingly marginal performance-linked dividend component. In 2024, the performance-linked portion was tens of billions higher than the base payout. In 2025, this variable component is expected to be near zero. If this is the case, the real impact will be not only a reset of expectations for investors but also for Riyadh’s sprawling fiscal apparatus. These issues will matter, as it should be reiterated that Aramco is not a typical publicly listed entity. At present, 80% of the company is owned by the Saudi government, while the Kingdom’s sovereign wealth fund, PIF (the Public Investment Fund), owns another 16% of the shares. For the Kingdom, Aramco’s dividends are not peripheral, but a central pillar of the Saudi budget. Also, don’t forget that they are a critical source of income for Vision 2030 financing. If, as anticipated, there is a $40 billion shortfall in dividend transfers from 2024 to 2025, Riyadh and its extensive list of megaprojects will be directly affected. While looking at the above, it is interesting to see that Aramco’s capital expenditure outlook remains elevated. For 2025, Aramco’s capital expenditure (capex) guidance remains in the $52–$58 billion range, with the majority allocated to upstream crude capacity and to expanding gas, refining, and petrochemical investments. This has been further underscored by the $11 billion Jafurah lease-and-leaseback deal, which has tied capital to the expansion of unconventional gas production. According to Aramco management, this is central to freeing up crude volumes for export and to anchoring a broader role in the energy system. There is, however, a stark trade-off behind this dynamic. If the company continues to prioritize dividend distributions to satisfy Riyadh’s fiscal needs, the result will be a reduction in the envelope currently available for growth capital expenditures. This will be crucial, as Aramco’s competitors and national champions in gas, LNG, and downstream integration are intensifying their own programs. If the Saudi giant, however, reallocates cash toward future-oriented capital expenditure, the Kingdom’s budget will be hit by a shock. Riyadh will need to find alternative funding sources. This, as some reports already indicate, will lead to asset sales, debt issuance, or, as we will see in the coming days, the drawing down of reserves held by the PIF or sovereign coffers. These changes will certainly affect the ongoing Giga Projects under Vision 2030 and even more at a later date. Although Aramco is a national oil company with a primary focus on domestic production and investment, its investment profile also features a notable international dimension. Aramco’s downstream and refining stakes in Asia, which entail strategic supply agreements, combined with increasing gas production capacity targets, are designed to position or even increase the company as a linchpin of global energy flows. While all these moves will enhance its long-term optionality, they will also demand patience, scale, and reliability. These factors or traits are now expected to clash increasingly with short-cycle dividend expectations. In the coming weeks, the market will test whether its expectations for 2025 are reflected not only in signals but also in results. Analysts expect a normalization of dividend yields, compared with the extraordinary payouts of 2022–2023. Some analysts still see Aramco’s balance sheet and nominal dividend yield (often referenced at around 5 – 6 %) as very attractive on a relative basis. Still, such yield stability contradicts the underlying stress: lower overall payouts are putting pressure on fiscal planning, while sustaining capital expenditure commitments will risk further compressing free cash flow. This picture was already painted by the half-year financials, which reported lower revenue and net income compared with H12024. Again, the main reasons cited were lower prices and softening refined-product prices. Aramco’s production volumes were, however, robust, while capital spending held steady. The H12025 report fully supported the company’s deliberate choice to defend future supply capacity while the revenue contract is still in place. Aramco is spending heavily to maintain its strategic footprint. The latter, even in a situation in which cash available for distribution is shrinking. Where the market sometimes goes wrong is to forget that this contradiction is acute for the Kingdom’s broader economic goals. Saudi Crown Prince Mohammed Bin Salman’s Vision 2030 continues to depend heavily on high-profile investments in infrastructure, technology, and diversification. None of them is looking at low-cost environments; at present, the pressure is on. A reduced Aramco dividend immediately creates a financing gap that must be filled by alternative revenue streams or by redirecting capital that might otherwise have supported future growth, which is not considered preferable, at least in Riyadh. When examining the most strategic risk, it is clear that flexible capital may be eroded. The latter will become an increasingly pressing issue if free cash flow, formerly used to invest in bold upstream expansions, gas infrastructure, or downstream equity partnerships, is now competing with pressure to maintain dividend commitments. Aramco’s navigation of this will be crucial, especially in 2026, given the financial environment surrounding it and the issues affecting Vision 2030 projects. Aramco’s navigation of this trade-off will not only affect the company’s balance-sheet health but also its global operational relevance in an energy order that is rapidly evolving or even changing strategies. The key indicator to examine in the FY2025 figures will be the relationship among cash flows from operations, capital expenditure execution, and dividend payouts. There is an increased chance that the pressure to choose between growth and distribution will intensify. Especially if operational cash generation falters (due to lower oil prices or downstream margins), it should be understood that sustained or improved cash flows will provide only a temporary buffer if supported by disciplined capital allocation. The latter will have to recognize the dual fiscal and strategic roles the Saudi oil giant inhabits. Aramco’s future will be defined by how it arbitrates between serving as Saudi Arabia’s treasury and serving as its long-term energy strategist. Headline financials or revenues are not the main deal maker. Still, markets are largely focused on short-term payouts rather than strategy as a driver. For Aramco and the Kingdom (its owner), the main challenge will be to reverse that dynamic. By Cyril Widdershoven for Oilprice.com More Top Reads From Oilprice.com