Saudi Aramco (2222)
2222 · Saudi Exchange (Tadawul) · Energy · Reporting currency USD · As of 7 August 2026
The lowest cost barrel on earth, inside a fiscal structure that takes the upside first.
Trigger to BUY: SAR 20.00 or below, being the fair value midpoint of SAR 24.90 less a 20% margin of safety. Four of six quality tests pass. The two that fail are valuation and dividend cover, and both are fixed by a lower price rather than by a better business. Objective: income with modest total return. Holding period three to five years. Allocation band this instrument's characteristics support: 0% to 3% of a diversified equity portfolio as a satellite position. Note that the trigger sits below the 52 week low of SAR 23.04, so it may never be reached.
| Metric | Value | Metric | Value |
|---|---|---|---|
| Market capitalisation | SAR 6,413bn | In dollars | USD 1,710bn |
| Enterprise value | USD 1,728bn | Shares outstanding | 242bn |
| 52 week range | SAR 23.04 – 27.96 | Trailing P/E | 14.2x |
| P/E on mid cycle earnings | 16.0x | Price to book | 3.7x |
| Dividend yield, base | 5.12% | Return on capital employed | 22.1% |
| Gearing, 30 June 2026 | 6.2% | Beta, five year | 0.48 |
| Free float | 2.48% | Average daily turnover | USD 83mn |
Source: Aramco H1 2026 interim results and webcast presentation, 4 August 2026 (Tier 1); Aramco FY2025 results press release, 10 March 2026 (Tier 1); Argaam market data, retrieved 7 August 2026 (Tier 3). Price is the close of 6 August 2026. Riyal figures converted at the SAR 3.75 dollar peg.
Why this matters now
- On 28 February 2026 the United States and Israel struck Iran and traffic through the Strait of Hormuz collapsed. Brent, near USD 72 the day before, reached USD 114.58 in April and sat at USD 79.15 on 5 August as reopening talks advanced.
- Second quarter realised crude of USD 108.1 a barrel was 62% higher year on year while liquids production fell 28% to 7.6mn barrels a day. Adjusted net income still rose 33%.
- First half free cash flow of USD 30.9bn did not cover the USD 43.8bn base dividend paid. Gearing has risen in each of the last three quarters, all of which were record earnings quarters.
Three reasons to own it
- The lowest cost producer in the world. An upstream lifting cost of USD 3.51 a barrel and upstream capital expenditure of USD 8.00 a barrel, with a return on capital employed of 22.1% against roughly 11% for the five largest international majors on the company's own comparison.
- The least levered balance sheet in the sector. Gearing of 6.2% against a peer group near 20%, a cash position above USD 60bn, and a standalone credit assessment of Aa1 and AA+ from Moody's and Fitch.
- A tax arbitrage inside the gas programme. Sales gas capacity is targeted roughly 80% higher by 2030 against 2021. Gas activity is taxed at 20% rather than the 50% applied to upstream crude, so the mix shift is accretive after tax and is the most underrated line in the story.
Three risks that matter
- The payoff is concave by design. Above USD 100 Brent a shareholder receives 10.0 cents of each marginal dollar. Below USD 70 they lose 42.5 cents of each one. The structure caps the upside and does not cap the downside.
- The dividend is running on the balance sheet. Cover of 0.71x at a realised USD 90.1, with the performance linked layer already cut 98% and no third layer behind it.
- One counterparty decides almost everything. The state holds 81.48% directly and is simultaneously the royalty setter, the tax authority, the price equalisation counterparty and, through OPEC+, the volume setter. The public float is 2.48%.
What the business actually is
Aramco sells crude oil, natural gas and refined and chemical products. It holds an exclusive concession over Saudi Arabia's hydrocarbon resources, which means it does not explore competitively, does not bid for acreage, and does not need to replace reserves by acquisition. It lifts oil from a small number of very large fields at a cost almost no other producer can reach, sells roughly half of it to external customers and processes the rest through its own refining and petrochemical system.
Two things follow from that structure, and they matter more than anything in the investor presentation. First, Aramco does not set its own volume: production is a function of Saudi Arabia's OPEC+ commitments and, in 2026, of whether its barrels can physically reach a buyer. Second, Aramco does not keep its own price. The concession applies a rising royalty to the value of production, and the state then taxes what is left at 50% upstream. The company is a very efficient operator sitting inside a fiscal structure designed to route the commodity cycle to the treasury.
Source: Aramco H1 2026 webcast presentation, 4 August 2026. Tier 1. Downstream adjusted EBIT is struck after a replacement cost adjustment removing inventory holding gains and losses.
On a normal year upstream is roughly 95% of segment profit, which is why refining is best read as a hedge rather than as a business line. That hedge worked in 2025: crude fell from USD 80.2 realised to USD 69.2, upstream adjusted EBIT fell USD 18.2bn, and downstream adjusted EBIT rose USD 7.7bn as refining margins widened. It worked again in the first half of 2026, when downstream adjusted EBIT more than doubled to USD 11.7bn.
Source: Aramco FY2025 results press release, 10 March 2026, and H1 2026 webcast presentation, 4 August 2026. Tier 1.
| Driver | Level | What it does to earnings |
|---|---|---|
| Realised crude price | USD 90.1 a barrel, H1 2026 | The dominant variable. Passes through the royalty ladder before reaching profit |
| Liquids production | 9.1mn barrels a day, H1 2026 | Set by the OPEC+ quota and, since March, by export logistics rather than by capacity |
| Upstream lifting cost | USD 3.51 a barrel | Effectively fixed and very low, so margin tracks price almost one for one before royalty |
| Upstream capital cost | USD 8.00 a barrel | Sustains capacity at 12mn barrels a day; capital investment guided at USD 50bn to 55bn for 2026 |
| Downstream utilisation of own crude | 53% | Roughly half of production is captive, which dampens the swing in realised group margin |
| Supply reliability | 99.9%, 2025 | Volume committed and delivered on schedule; the basis of the customer relationship |
Source: Aramco Annual Report 2025 key metrics; FY2025 results press release, 10 March 2026; H1 2026 webcast presentation, 4 August 2026. Tier 1.
The durable advantage is a cost position built on geology and scale, protected by an exclusive legal concession. That is about as strong a barrier as exists in extractive industry. But the concession runs for an initial 40 years from December 2017, extendable by 20 years if conditions are met, and any period beyond that is subject to fresh agreement. The moat is real. The question a minority shareholder has to answer is how much of the rent inside it they are entitled to, and the answer is set by the same party that owns 81.48% of the equity.
Industry position and the 2026 shock
On 28 February 2026 the United States and Israel struck Iran. Traffic through the Strait of Hormuz, which normally carries about a fifth of the world's seaborne oil, collapsed. Aramco counts more than two billion barrels of global liquids supply lost between the start of the conflict and 30 July, and recorded 245 vessel crossings of the strait in July against a historical run rate above a thousand a month. Iraq declared force majeure. Brent, which sat near USD 72 the day before the strikes, reached USD 114.58 in April.
Aramco's response is the clearest demonstration of its asset base in years. It ramped the East West Pipeline to its full 7.0mn barrel a day capacity to move crude to the Red Sea coast, maximised throughput at west coast refineries and terminals, and drew on storage in Asia, Europe and the Middle East. Exports continued. But the pipeline is a ceiling, and it shows: second quarter liquids production fell to 7.6mn barrels a day from 10.5mn a year earlier, a fall of 28%.
Source: Aramco quarterly disclosures, most recently the H1 2026 webcast presentation of 4 August 2026. Tier 1.
Source: Aramco quarterly disclosures, most recently the H1 2026 webcast presentation of 4 August 2026. Tier 1.
Realised price rose 62% year on year in the second quarter. Liquids production fell 28%. Adjusted net income rose 33%. A shareholder reading only the profit line would conclude the business had a superb quarter. What actually happened is that Aramco sold a quarter less oil at a price it did not choose, into a market disrupted by a war on its border, and the fiscal structure took most of the difference.
| Measure | Aramco | Five largest IOCs | Comment |
|---|---|---|---|
| Return on capital, rolling twelve months | 22.1% | c.11% | Aramco reports roughly twice the peer average |
| Gearing | 6.2% | c.20% | Lowest in the peer group, on Aramco's own comparison |
| Reserves life | c.5x peers | Baseline | No requirement to acquire reserves to sustain production |
| Cash position | Above USD 60bn | Below Aramco | Described by the company as unmatched in the peer set |
| Standalone credit rating | Aa1 / AA+ | A1 to Aa2 | Assessed on a standalone basis by Moody's and Fitch |
| Spare crude capacity | Material | None | Maximum sustainable capacity of 12mn barrels a day; peers have already maximised production |
Peer set is bp, Chevron, ExxonMobil, Shell and TotalEnergies. Source: Aramco H1 2026 webcast presentation, 4 August 2026. Tier 1. Basis of calculation across companies may differ.
Management's stated view is that global liquids demand rises from 105.1mn barrels a day in the first half to 107.1mn in the second, that the final strategic reserve releases conclude in August, and that inventory restocking creates an additional call on crude once flows normalise. That is a coherent case for volume recovery. It is also, on Aramco's own numbers, a case for a lower price: the same normalisation that lets the barrels move removes the premium they currently sell at.
Financial performance and the quality behind it
| Measure | FY24 | FY25 | Change |
|---|---|---|---|
| Revenue and other income | 480.5 | 445.7 | −7.2% |
| Operating income | 206.6 | 188.5 | −8.8% |
| Net income, IFRS | 106.3 | 93.4 | −12.1% |
| Adjusted net income | 110.3 | 104.7 | −5.1% |
| Upstream adjusted EBIT | 213.6 | 195.5 | −8.5% |
| Downstream adjusted EBIT | 2.4 | 10.0 | +325% |
| Operating cash flow | 135.7 | 136.2 | +0.4% |
| Capital expenditure | 50.4 | 50.8 | +0.8% |
| Free cash flow | 85.3 | 85.4 | +0.1% |
| Base dividend paid | 81.2 | 84.6 | +4.2% |
| Performance linked dividend | 43.1 | 0.9 | −98.0% |
| Total distributions | 124.2 | 85.5 | −31.2% |
| Realised crude, USD a barrel | 80.2 | 69.2 | −13.7% |
| Liquids, mn barrels a day | 10.29 | 10.68 | +3.8% |
| Return on capital employed | 21.1% | 19.8% | −1.3pp |
| Gearing at year end | 4.5% | 3.8% | −0.7pp |
Source: Aramco FY2025 results press release, 10 March 2026. Tier 1. Annual accounts audited by PricewaterhouseCoopers.
| Measure | H1 25 | H1 26 | Change |
|---|---|---|---|
| Adjusted net income | 52.0 | 67.2 | +29.2% |
| Upstream adjusted EBIT | 96.1 | 105.1 | +9.4% |
| Downstream adjusted EBIT | 4.8 | 11.7 | +144% |
| Operating cash flow | 59.3 | 56.2 | −5.2% |
| Capital investments | 24.5 | 25.1 | +2.4% |
| Free cash flow | 34.4 | 30.9 | −10.2% |
| Free cash flow excluding working capital | 39.4 | 60.3 | +53.0% |
| Base dividend paid | 42.3 | 43.8 | +3.5% |
| Free cash flow cover of dividend | 0.81x | 0.71x | −0.10x |
| Realised crude, USD a barrel | 71.5 | 90.1 | +26.0% |
| Liquids, mn barrels a day | 10.4 | 9.1 | −12.5% |
| Total hydrocarbons, mn boed | 12.5 | 11.0 | −12.0% |
| Gas, bscfd | 11.1 | 10.2 | −8.1% |
| Return on capital employed | 20.3% | 22.1% | +1.8pp |
| Gearing at period end | 6.5% | 6.2% | −0.3pp |
Source: Aramco H1 2026 webcast presentation, 4 August 2026. Tier 1. Free cash flow cover is computed as free cash flow divided by base dividend paid.
Quality of growth: where the 29% came from
The first half increase in adjusted net income is almost entirely price, and the price is a war premium. Volumes fell in every category: liquids down 12.5%, gas down 8.1%, total hydrocarbons down 12.0%. This is not growth of the kind that justifies paying a higher multiple. It is a windfall on a shrinking base, and the company itself describes the conditions that produced it as disruption rather than as opportunity.
Source: Aramco H1 2026 webcast presentation, 4 August 2026. Tier 1.
Six quarters of adjusted net income sit in a band from USD 25.1bn to USD 33.8bn, while the realised crude price moved from USD 64.1 to USD 108.1. That narrow range is the royalty ladder at work: the structure that caps the upside is the same one that makes the earnings stable.
Quality of earnings: four observations from the filings
| Item | What the accounts show |
|---|---|
| Adjusted versus reported | Adjusted net income exceeded IFRS net income by USD 11.3bn in 2025 against USD 4.1bn in 2024, a gap that nearly tripled. It is driven by USD 8.6bn of impairment and held for sale remeasurement losses, mostly on SABIC petrochemical assets. In a capital intensive business these are a real cost, not an accounting artefact |
| Working capital | First half free cash flow of USD 30.9bn absorbed USD 29.4bn of working capital build, USD 15.8bn in the first quarter and USD 13.6bn in the second. Excluding it, free cash flow was USD 60.3bn. The build is described as price equalisation receivables settling in the third quarter, and the counterparty is the government |
| Segment adjustment basis | Downstream adjusted EBIT is struck after a replacement cost adjustment removing inventory holding gains and losses, USD 364mn in 2025. The adjusted figure is the more useful one, but it is not the statutory result |
| Related party density | The government is at once the 81.48% shareholder, royalty setter, tax authority, price equalisation counterparty and, through OPEC+, volume setter. Almost every major line of the income statement runs through a related party |
Source: Aramco FY2025 press release reconciliation of adjusting items; H1 2026 interim results; Annual Report 2024 legal section. Tier 1. None of this is improper and the disclosure is complete.
Balance sheet, cash generation and what reaches the holder
Aramco has the strongest balance sheet in its industry and a distribution policy that is beginning to strain against it. Both statements are true, and the second is the one that decides the equity.
| Period | Free cash flow | Distributions paid | Cover |
|---|---|---|---|
| FY 2024 | 85.3 | 124.2 | 0.69x |
| FY 2025 | 85.4 | 85.5 | 1.00x |
| H1 2025 | 34.4 | 42.3 | 0.81x |
| H1 2026 | 30.9 | 43.8 | 0.71x |
Source: Aramco FY2025 press release, 10 March 2026, and H1 2026 presentation, 4 August 2026. Tier 1. Distributions paid is base plus performance linked dividends actually distributed in the period.
Aramco's dividend has two layers. The base dividend has risen for four consecutive years and is guided at USD 87.6bn for 2026. The performance linked dividend is the variable layer, set at 50% to 70% of surplus free cash flow after the base payout. In 2024 it distributed USD 43.1bn. In 2025 it distributed USD 0.9bn, a cut of 98%, because 2024 surplus free cash flow came to USD 1.2bn. That is the mechanism working exactly as designed. It is also the shock absorber being fully used. From here, any further shortfall lands on the base dividend, on gearing, or on the capital programme. There is no third layer.
Source: Aramco H1 2026 presentation appendix, 4 August 2026. Tier 1. The performance linked layer distributed USD 19.8bn in 2023, USD 43.1bn in 2024 and USD 0.9bn in 2025.
| Line | Value |
|---|---|
| Total borrowings | 96,965 |
| Cash and cash equivalents | (64,826) |
| Short term investments | (3,905) |
| Investments in debt instruments | (9,964) |
| Net debt | 18,270 |
| Total equity | 459,132 |
| Gearing | 3.8% |
Source: Aramco FY2025 press release, non-IFRS reconciliation, 10 March 2026. Tier 1.
Gearing has moved from 3.8% at the end of 2025 to 4.8% at March and 6.2% at 30 June. Net debt rose while the company reported record half year profits. That is working capital and the dividend, not distress, and at 6.2% the balance sheet is still the least levered in the sector by a wide margin. The point is direction rather than level. Aramco is funding a distribution partly from the balance sheet in a period when its realised price averaged USD 90.1 a barrel. The buffer is enormous, and it is being drawn on at the top of the cycle.
| Measure | Position | Assessment |
|---|---|---|
| Shares outstanding | 242bn | Unchanged. Share capital of SAR 90bn last altered by announcement of 7 June 2024. No dilution |
| Treasury shares | 0.04% | Held for employee share plans, not a float |
| Buyback programme | Up to USD 3.0bn | Over 18 months from March 2026, for employee share purchase plans. At 0.18% of market value it funds compensation rather than returning capital |
| Dividend per share, 2026 base | SAR 1.3574 | USD 0.3620. A yield of 5.12% at SAR 26.50, and the entirety of the shareholder return |
Source: Aramco FY2025 press release, 10 March 2026; Argaam corporate actions, retrieved 7 August 2026. Tier 1 and Tier 3.
Capital investment has been held flat through both a price collapse and a price spike, which is genuine discipline. Guidance of USD 50bn to USD 55bn was maintained at the half year despite a realised USD 90.1. The guided mix is 65% to 70% upstream, 20% to 25% downstream and 5% to 10% new energies.
Ownership, governance and capital allocation
| Holder | Stake | Value |
|---|---|---|
| Government of Saudi Arabia, direct | 81.48% | USD 1,393bn |
| PIF, Sanabil and PIF owned companies | 16.00% | USD 274bn |
| Public shareholders | 2.48% | USD 42bn |
| Treasury | 0.04% | USD 1bn |
Source: Aramco disclosures, cross-checked against Saudi Press Agency and Arab News reporting of the March 2024 transfer. Tier 1 and Tier 3. Values at the 6 August 2026 close.
The float is 2.48%. In absolute terms that is still USD 42bn of stock and USD 83mn of average daily turnover, so a private investor can transact freely. The constraint is not liquidity. It is influence: no combination of public shareholders can carry a vote, requisition a meeting, or alter policy. Chairman Yasir Al-Rumayyan is concurrently Governor of the PIF, which holds part of the 16% block. The President and CEO is Amin H. Nasser, in post since 2015. The auditor is PricewaterhouseCoopers.
The fiscal regime, which is the real governance question
The concession sets a royalty on the value of crude and condensate production: a baseline 15% up to USD 70 Brent, a marginal 45% between USD 70 and USD 100, and a marginal 80% above USD 100. Income tax is 50% on upstream and 20% on downstream and certain natural gas activities. The schedule was last amended with effect from 1 January 2020, cutting the baseline rate from 20% to 15% and raising the two marginal rates from 40% and 50%.
Royalty per barrel by Brent price under the concession as amended 1 January 2020. Source: Aramco Annual Report 2024, legal section. Tier 1.
| Brent band | Marginal government take | Reaching shareholders |
|---|---|---|
| Below USD 70 | 15% | 42.5 cents |
| USD 70 to USD 100 | 45% | 27.5 cents |
| Above USD 100 | 80% | 10.0 cents |
Marginal royalty rate, and the residual reaching shareholders after 50% upstream income tax, per additional dollar of Brent. Derived from the concession terms in Aramco Annual Report 2024. Tier 1.
Two consequences follow. On the way up, a shareholder receives ten cents of every marginal dollar above USD 100. On the way down through USD 70, they lose 42.5 cents of every dollar. The payoff is concave. It also explains why the shares were up 12.2% year to date while ExxonMobil, Chevron and BP were up 31%, 29% and 27% respectively in late July: the international majors captured the war premium and Aramco largely did not.
| Decision | Outcome |
|---|---|
| Capital discipline | Capital investment of USD 52.2bn in 2025, USD 1.0bn below 2024 and in line with guidance. 2026 guidance of USD 50bn to USD 55bn maintained despite the price spike |
| Gas expansion | Sales gas capacity targeted roughly 80% higher by 2030 against 2021. Jafurah phase one producing, Tanajib operating, Fadhili expansion and Jafurah phase two due 2027. Gas is taxed at 20% against 50% upstream, so the mix shift is accretive after tax |
| Portfolio pruning | Full PRefChem interest sold to PETRONAS in May 2026. SABIC petrochemical and engineering thermoplastics classified as held for sale, driving the 2025 impairments |
| Distribution policy | Base dividend raised four consecutive years at 4.0%, 4.0%, 4.2% and 3.5%. Growth is decelerating and the performance linked layer has been cut to near zero |
| Equity issuance | June 2024 secondary offering raised USD 11.2bn at SAR 27.25. The shares last closed at SAR 26.50, below that price two years on |
Source: Aramco FY2025 press release, 10 March 2026; H1 2026 presentation and news releases, 4 August 2026; PRefChem disposal release, 25 May 2026; Argaam disclosures. Tier 1 and Tier 3.
The record is not a poor one. Capital discipline is real and the gas programme is strategically sound. Technology realised value was USD 5.3bn in 2025 and USD 11.3bn since 2023, which is measured rather than asserted. The difficulty is structural rather than managerial: a team can execute perfectly and still deliver a modest return to minorities if the fiscal schedule takes the upside first. This is not an argument against the company but about who it is run for.
Valuation
Model selection. Aramco's earnings are a function of a price it does not set, a volume it does not choose and a royalty ladder it does not control, so a spot anchored discounted cash flow is a bet on spot wearing a model as a disguise. We value mid cycle earnings on a mid cycle multiple, cross checked on a dividend discount because the dividend is the whole shareholder return.
Assumption block - mid cycle earnings
- Realised crude USD 75 a barrel. Our estimate. Between the USD 69.2 realised in 2025 and the USD 80.2 of 2024, and consistent with a post-normalisation Brent in the USD 72 to USD 78 range.
- Liquids 10.5mn barrels a day. Our estimate, a recovery to the 2024 and 2025 run rate rather than to the 12mn capacity.
- Downstream adjusted EBIT USD 7.0bn. Our estimate, between the USD 2.4bn of 2024 and the USD 11.7bn annualised first half of 2026.
- Mid cycle adjusted net income USD 107bn, giving earnings per share of SAR 1.658 on 242bn shares at the SAR 3.75 peg.
Assumption block - the multiple
- Range 13 to 17 times. The low end for the 2.48% float, the concave payoff, a finite concession and an uncovered dividend. The high end for a USD 3.51 lifting cost, a 22.1% return on capital and 6.2% gearing.
- Fair value SAR 21.50 to SAR 28.25, midpoint SAR 24.90, which is 6.0% below the SAR 26.50 close.
- Margin of safety 20%, not the 25% to 30% used for most cyclicals, because the governance and fiscal discount already sits inside the 13 to 17 times range and applying it twice would double count.
- Dividend discount cross check SAR 21.30 to SAR 25.18, agreeing at the lower end of the multiple-derived range.
| Realised price | 12.0x | 13.5x | 15.0x | 16.5x | 18.0x |
|---|---|---|---|---|---|
| USD 62, net income USD 91bn | 16.92 | 19.04 | 21.15 | 23.27 | 25.38 |
| USD 68, net income USD 99bn | 18.41 | 20.71 | 23.01 | 25.31 | 27.61 |
| USD 75, net income USD 107bn | 19.90 | 22.38 | 24.87 | 27.36 | 29.85 |
| USD 82, net income USD 114bn | 21.20 | 23.85 | 26.50 | 29.15 | 31.80 |
| USD 88, net income USD 119bn | 22.13 | 24.89 | 27.66 | 30.43 | 33.19 |
Our model. Net income at each realised price is derived through the royalty ladder and the 50% upstream tax rate. E denotes estimates: every figure in this grid is ours, not the company's. The base case is USD 75 at 15.0x. Nine of twenty-five cells clear the SAR 26.50 market price.
At SAR 26.50 the shares trade on 16.0 times our mid cycle earnings, against a 13 to 17 times range whose midpoint is 15. Reading the grid across, the current price is consistent with a mid cycle realised crude price of about USD 82 a barrel at a 15 times multiple. That is above the USD 80.2 Aramco realised in 2024 and well above the USD 69.2 of 2025. The market is not paying for the war premium, but it is paying for a normalisation to a level above the last two years.
Catalysts, scenarios and what the price already assumes
| Date | Event | Why it matters |
|---|---|---|
| 19 and 27 August 2026 | Ex dividend, then Q2 2026 base dividend paid, USD 21.9bn | SAR 0.34 a share, a third consecutive quarter at USD 21.9bn against free cash flow that has not matched it |
| August 2026 | Final strategic reserve releases conclude | Aramco expects this to tighten the market by removing non OPEC supply |
| Ongoing | Strait of Hormuz reopening talks | The single largest driver. Brent fell 5.3% on 4 August on progress alone |
| 3 November 2026 | Q3 2026 results and earnings call | The decisive datapoint. Tests whether the USD 29.4bn working capital build reverses as guided, and whether free cash flow covers the USD 21.9bn quarterly dividend |
| End 2026, 2027 | Zuluf increment, then Fadhili and Jafurah phase two | Zuluf adds capacity the quota does not require. The gas projects are taxed at 20% rather than 50%, so accretive to group after tax margin |
| 2 March 2027 | FY 2026 results | Sets the 2027 base dividend and reveals whether the performance linked layer survives |
Source: Aramco H1 2026 presentation reporting calendar and news releases, 4 August 2026; Argaam events calendar; Al Jazeera and Trucking Info reporting on Brent, 4 to 5 August 2026. Tier 1 and Tier 3.
Vertical marker = current price SAR 26.5
Returns are total returns over one year from SAR 26.50 and include the base dividend. Probabilities are our judgement. The probability weighted total return is −3.7%.
| Case | What has to be true | Value | Total return | Probability |
|---|---|---|---|---|
| Bear | Hormuz reopens fully and the premium unwinds faster than volumes recover. Brent settles near USD 62, downstream normalises to USD 4bn, the base dividend is visibly uncovered, gearing keeps rising, and the market re-rates to 13 times a lower base | SAR 17.75 | −27.9% | 30% |
| Base | Flows normalise through 2027, Brent settles in the USD 72 to USD 78 range, volumes recover to 10.5mn barrels a day and downstream returns to USD 7bn. Mid cycle earnings of USD 107bn on 15 times, dividend held and growing slowly | SAR 24.90 | −0.9% | 50% |
| Bull | The reopening happens but the market permanently reprices Gulf concentration risk, keeping a structural premium in long dated forwards. Realised price holds near USD 88, volumes recover, refining stays strong and the gas programme shifts mix into the 20% tax band | SAR 31.90 | +25.5% | 20% |
Mid cycle adjusted net income of USD 107bn capitalised at 13 to 17 times. Price is the 6 August 2026 close. The gold band is the fair value range of SAR 21.50 to 28.25; the market price sits inside it, above the SAR 24.90 midpoint, and well above the SAR 20.00 buy trigger.
Expected return, one year probability weighted
| Component | Contribution |
|---|---|
| Bear at 30%, return −27.9% | −8.37% |
| Base at 50%, return −0.9% | −0.46% |
| Bull at 20%, return +25.5% | +5.10% |
| Expected total return | −3.7% |
Our model. Total returns include the base dividend.
Expected return, annualised over a three year hold
| Component | Contribution |
|---|---|
| Price SAR 26.50 to midpoint SAR 24.90 | −6.04% |
| Annualised over three years | −2.05% |
| Base dividend yield | +5.12% |
| Expected annual return to midpoint | +3.07% |
Our model. Assumes the dividend is held flat and the shares converge on the fair value midpoint over three years.
Converging on the midpoint over three years earns about 3% a year, which is the dividend less a slow de-rating. Weighting the scenarios over one year gives −3.7%, because the bear case is severe and near term. Neither is a return that compensates for a single country, single commodity position with a capped payoff, and that is the case for waiting.
Risk register, the case against, and invalidation
| Risk | Mechanism | Leading indicator | Severity |
|---|---|---|---|
| Fiscal regime change | The controlling shareholder is also the royalty setter. If Brent settles below the fiscal breakeven, raising the take is the fastest lever and needs no shareholder consent | Saudi budget statements; Brent against fiscal breakeven; any concession amendment | High |
| Normalisation outpaces volume recovery | Reopening removes the premium at once, but volumes return over quarters and are capped by the quota, not by capacity. Earnings fall before they recover | Hormuz vessel crossings; Brent forward curve; OPEC+ decisions | High |
| Dividend outruns cash generation | Cover was 0.71x in the first half at a realised USD 90 a barrel, and the performance linked layer is already at zero. Further shortfall lands on gearing, capex, or the base dividend | Quarterly free cash flow against USD 21.9bn; gearing trend; 2027 base dividend guidance | High |
| Physical and geopolitical exposure | Assets sit in an active conflict zone. Jazan refinery closed after an attack, and Houthi forces have claimed strikes on Saudi positions and a tanker | Incident reporting; insurance and freight rates; refinery utilisation | High |
| Minority position and float | 2.48% of the equity is public. The state's interest as fiscal authority can diverge from its interest as owner | Related party disclosure; any further stake transfers | Medium |
| Concession term | Exclusive rights run 40 years from December 2017, extendable by 20. Beyond that requires fresh agreement on unknown terms | Annual report legal section; any early renegotiation | Medium |
| Receivable quality | USD 29.4bn absorbed in the first half as government price equalisation receivables, on a settlement timetable Aramco does not control | Q3 2026 cash flow statement on 3 November | Medium |
| Terminal hydrocarbon demand | A reserve life five times the peer average is an asset only while the barrels are wanted | Long run demand forecasts; policy on internal combustion phase out | Low now |
The case against, argued properly
- One. The reopening trade. Brent falls to the low USD 60s as Hormuz normalises. Volumes recover on a quota timetable, not a market one. Earnings fall to roughly USD 88bn and the multiple compresses as cover worsens. Value SAR 17.75, a 33% fall from today.
- Two. The fiscal squeeze. The state raises its take to protect the budget. Each 5 point rise in the marginal royalty over the USD 70 to USD 100 band costs roughly USD 4bn after tax, near 4% of mid cycle earnings, or SAR 1.00 a share at 15 times. The marginal rates were last raised in 2020.
- Three. The dividend stops growing. Growth has stepped down from 4.2% to 3.5% and cover is below one. Held flat, the dividend discounted at an 8% required return gives SAR 16.97. For a stock whose whole return is the dividend, that is the floor.
The case for, argued properly
- One. A permanent risk premium. The market may never again price Gulf supply as riskless. If a structural premium sticks in long dated forwards, realised prices settle near USD 88 and Aramco earns USD 119bn to USD 121bn mid cycle. Value SAR 31.90.
- Two. The gas programme is a tax arbitrage. Sales gas capacity is targeted roughly 80% higher by 2030 against 2021. Gas is taxed at 20% against 50% for crude, and pays no royalty where the government elects to forgo it. Every barrel of equivalent shifted from crude to gas is worth more after tax. The most underrated line in the story.
- Three. Optionality nobody else owns. Roughly 4mn barrels a day of spare capacity at a USD 3.51 lifting cost. If demand outruns non OPEC supply, Aramco is the only producer that can answer, at close to 100% incremental margin before royalty.
Invalidation: what would tell a holder they are wrong
- The thesis is wrong if free cash flow exceeds USD 21.9bn in a quarter at a realised price below USD 75, showing the dividend is covered at mid cycle prices. The first test is 3 November 2026. It is also wrong if the concession is amended in the company's favour, removing the fiscal and duration discount from the multiple.
- The rating moves to BUY at SAR 20.00 or below, a 20% discount to the midpoint, where the base dividend yield is 6.79% and the mid cycle multiple is 12.1 times.
- The rating moves to AVOID if the base dividend is cut or held flat in 2027 guidance, or if the royalty schedule is raised.
Portfolio fit, entry strategy and the decision
| Constraint | Measure | What it implies |
|---|---|---|
| Liquidity on exit | USD 83mn a day | Three month average turnover. Not binding for a private position. Despite a 2.48% float the absolute float is USD 42bn |
| Concentration | Largest TASI name | Anyone holding a Saudi or broad GCC index fund already owns Aramco. A direct position is an addition to existing exposure, not a new one |
| Volatility | Beta 0.48 | Unusually low for a commodity producer. The royalty ladder damps the earnings swing, which is the one place the structure works for the holder |
| Bear case drawdown | −33% | To SAR 17.75. Size so that a 35% fall is tolerable without forced selling |
| Currency | SAR pegged | Pegged to the dollar at 3.75, so this is dollar exposure, with the peg itself a tail risk tied to the same oil price |
Source: Argaam market data, retrieved 7 August 2026 (Tier 3); Aramco H1 2026 disclosures (Tier 1).
| Test | Result | Threshold | Outcome |
|---|---|---|---|
| Business activity | Hydrocarbons | Permissible | Pass |
| Interest bearing debt to market capitalisation | 5.67% | 30% | Pass |
| Cash and interest bearing securities to market capitalisation | 4.60% | 30% | Pass |
Thresholds on the AAOIFI Shariah Standard 21 basis of 30% of market capitalisation. Balance sheet at 31 December 2025 from the Aramco FY2025 press release, against market capitalisation at the 6 August 2026 close. The receivables ratio was not tested because the input could not be confirmed this run. This is a screen, not a fatwa.
Entry strategy and monitoring
- No position at SAR 26.50. The fair value midpoint is SAR 24.90 and the shares trade 6.4% above it. Buying here means paying for mid cycle earnings at 16 times while accepting a payoff that is capped above USD 100 Brent and open below USD 70.
- The BUY trigger is SAR 20.00, the midpoint less a 20% margin of safety. The margin is set at 20% rather than the 25% to 30% used for most cyclicals because the governance and fiscal discount is already inside the 13 to 17 times multiple range, and applying it twice would double count. The 20% covers estimation error in the mid cycle price and volume assumptions, which for an oil producer is the honest residual uncertainty. At the trigger the base dividend yield is 6.79% and the mid cycle multiple 12.1 times.
- If the trigger is reached, scale rather than commit: one third at SAR 20.00, one third at SAR 18.50, one third at SAR 17.00. Note that the trigger sits below the 52 week low of SAR 23.04, so it may not be reached. A WATCH that never converts is a valid outcome.
- Monitor quarterly: free cash flow against the USD 21.9bn base dividend, gearing, the realised crude price against the USD 75 mid cycle assumption, and reversal of the USD 29.4bn working capital build in the third quarter. Continuously: any amendment to the royalty schedule or concession, and the 2027 base dividend guidance at the March 2027 results.
Decision checklist - passes
- Business quality: the lowest cost producer in the world - Pass
- Balance sheet: 6.2% gearing, Aa1 and AA+ standalone - Pass
- Risks tolerable and monitorable: quantified with named indicators - Pass
- Position sizeable without market impact: USD 83mn traded a day - Pass
Decision checklist - qualified or failing
- Governance: qualified. 2.48% float, and the owner sets the tax
- Distribution cover: fails. 0.71x in the first half at a realised USD 90 a barrel
- Valuation: fails. 16.0x mid cycle earnings against a capped payoff
- Expected return: fails. −3.7% probability weighted over one year
WATCH, trigger SAR 20.00. Four of six tests pass. The two that fail are price and cover, and both are fixable by a lower price rather than by a better business. That is precisely what a WATCH is for. A reader who believes the mid cycle realised price is USD 82 rather than USD 75, or that a 17 times multiple is fair for an asset base this good, would call the shares reasonable here. That reader is not making an error, they are using a different input. Both are printed in the assumption block in section 06. Argue with those.
Appendix
| Rating | Definition |
|---|---|
| BUY | Price at or below the fair value midpoint less the stated margin of safety, with business, balance sheet, governance and valuation tests all passing |
| WATCH | Quality tests pass but the price does not, or a catalyst must be confirmed first. A WATCH must name its trigger |
| AVOID | Fails on business quality, balance sheet, governance or valuation, with no realistic path to the required return |
Saudi Aramco is rated WATCH, trigger SAR 20.00.
| Source | Tier | Used for | As of |
|---|---|---|---|
| Aramco H1 2026 interim results and webcast presentation | 1 | All H1 2026 figures: realised price, volumes, segment EBIT, cash flow, gearing, dividend, peer comparison, demand outlook | 4 Aug 2026 |
| Aramco FY2025 results press release | 1 | FY2024 and FY2025 income statement, cash flow, balance sheet, dividend, non-IFRS reconciliation | 10 Mar 2026 |
| Aramco Q1 2026 results release | 1 | First quarter realised price, volumes, gearing and working capital movement | May 2026 |
| Aramco Annual Report 2024, legal section | 1 | Concession terms, the royalty ladder rates and bands, income tax rates, concession duration | 2025 |
| Aramco Annual Report 2025 key metrics | 1 | Lifting cost, upstream capital cost, gas reserves, maximum sustainable capacity, supply reliability, localisation | 2026 |
| Aramco press release, PRefChem disposal to PETRONAS | 1 | Portfolio pruning in the capital allocation record | 25 May 2026 |
| Argaam market data and events calendar | 3 | Price, market capitalisation, 52 week range, turnover, beta, share count, dividend dates | 7 Aug 2026 |
| Saudi Press Agency and Arab News | 3 | The March 2024 transfer of shares to PIF vehicles, cross-checking the ownership register | 2024 |
| Al Jazeera, CNBC and Trucking Info | 3 | Brent price path through the 2026 conflict, the 4 August fall on reopening progress, and the 5 August close of USD 79.15 | 4 to 5 Aug 2026 |
| 24/7 Wall St | 3 | The April 2026 Brent high of USD 114.58 | Apr 2026 |
What desk research cannot answer
- The receivables ratio for the Shariah screen. The input could not be confirmed from a named source this run, so the line was omitted rather than estimated. The two ratios that could be verified both pass with very wide margins.
- The settlement timetable for the USD 29.4bn working capital build. Management states it settles in the third quarter. The counterparty is the government and the schedule is not published. This resolves by disclosure on 3 November rather than by analysis.
- Whether the concession will be extended, and on what terms. The initial term runs to 2057 with a possible 20 year extension. Nothing about the terms of any extension is public, and the answer is worth several turns of the multiple.
- The executive compensation structure. We could not confirm which metrics the incentive plan pays on, which matters more than usual where the controlling shareholder sets both the tax rate and the production quota.
Basis of analysis. Financial figures are drawn from Aramco's H1 2026 interim results and webcast presentation of 4 August 2026, the FY2025 results press release of 10 March 2026, the Q1 2026 release, and the Annual Reports for 2024 and 2025. Market data is as of the close on 6 August 2026 unless a different date is stated in the source line. Reporting currency is the United States dollar, and riyal figures are converted at the SAR 3.75 peg. Forecast and mid cycle figures are our estimates and every input traces to the assumption block in section 06. The fair value range was built from the company's own disclosures, and blocks that could not be verified from a named source were removed rather than estimated. The analyst holds no position in Saudi Aramco.
Analyst certification. The views expressed accurately reflect the analyst's own assessment of the securities and issuer discussed, formed from the sources above on the date shown. No part of any compensation was, is, or will be related to the specific recommendation or views expressed. This note was prepared independently and no compensation was received from the issuer or any related party.
This note on Saudi Arabian Oil Company was published on 7 August 2026 and reflects public information available to that date. Company results, market prices and commodity prices change; readers should verify current figures independently before making any decision.
This document is independent research prepared for informational purposes. It is not investment advice, not a recommendation to buy or sell any security, and does not constitute an offer or solicitation. Figures are drawn from public sources believed reliable as of the date shown and may change without notice. Anyone acting on this material does so at their own risk and should seek their own professional advice.