Saudi Aramco Says It Will Not Publish Official Revenue Forecasts – Why?

Saudi Arabia has stopped disclosing projected revenue from oil following the listing of Aramco, as doing so could give clues about the state energy giant’s dividend plans.

The Reason

The kingdom is relying on payouts from Aramco, the world’s biggest oil company, to help plug its budget deficit and bolster an economy that’s been hammered this year by coronavirus lockdowns and the crash in crude prices.

The Dhahran-based firm sold shares for the first time in December 2019, though the government still owns around 98% of them.

“The reason we don’t disclose the oil and non-oil breakdown is because of the presence of Aramco as a listed company,” Finance Minister Mohammed Al-Jadaan said in a press conference following the kingdom’s budget announcement for next year. “The government deals with Aramco as a supplier for tax.

We have revenue that comes from Aramco, tax that comes from Aramco and also dividends since the government is the largest shareholder.”

Aramco’s Present Condition

This is the first time in years the kingdom — which received dividends from Aramco even before it went public — hasn’t broken down projected oil revenue.

As part of their sales pitch to investors, Aramco executives pledged to pay an annual dividend of $75 billion — the largest globally — for at least five years after the initial public offering in Riyadh.

While Aramco has remained on track through the first three quarters of this year, analysts have questioned whether it can keep up such large payments as its finances come under strain following the fall in oil prices.

Aramco generated $33.5 billion of free cash flow in the first nine months of the year, which was more than $20 billion short of its declared dividends for the period.

Global Crude Oil Prices

Brent crude has risen to about $50 a barrel since OPEC+ — an alliance of major oil exporters led by Saudi Arabia and Russia — cut production in May. But the global benchmark is still down 23% this year.

To conserve cash to keep up shareholder payouts, Aramco has slashed spending, borrowed more and laid off hundreds of mainly foreign workers. It’s also hired U.S. investment bank Moelis & Co. to advise it on selling stakes in some subsidiaries, which could raise billions of dollars.

The kingdom stated in its budget that it would cut spending by 7.3% next year to 990 billion riyals ($264 billion). Revenue is forecast to be 849 billion riyals. That would lower the fiscal deficit to 4.9% of gross domestic product from 12% in 2020.

The government is projecting an average oil price of $45-$48 a barrel in 2021, according to estimates from Cairo-based bank EFG Hermes.

“We expect government oil revenues to range from 400-500 billion riyals, depending on Aramco’s dividends,” Riyadh-based Al Rajhi Capital said in a report. Non-oil revenue will be around 400 billion riyals, boosted by an increase to value-added tax and growth in the private sector, it said.

Analyst Expectations

Analysts at Goldman Sachs Group Inc. said in October that, according to their calculations, the kingdom was budgeting for oil prices to be around $50 a barrel for the next three years.

Saudi Arabia needs oil to trade at $66 a barrel next year to balance its budget, according to the International Monetary Fund.,

“Saudi Arabia doesn’t speak about oil prices,” said Al-Jadaan. “The finance ministry doesn’t speak about oil prices nor its forecasts. The kingdom is a main supplier and affects the oil market, and it wouldn’t be of its interest to talk about future oil prices.”