Saudi Aramco Base Oil Company (Luberef) announced its annual financial results for the year ending December 31, 2023, showing a 12% year-on-year decline in net profit. Net profit reached SAR 855.13 million, compared to SAR 972 million in 2022. This announcement highlights the operational dynamics and their direct impact on the financial performance of major companies in the energy and petrochemicals sector.
Reasons for the decline in profits
In its official statement on the Saudi Stock Exchange (Tadawul), Luberef attributed this decline primarily to lower sales volumes of base oils and by-products. The company explained that this decrease resulted from scheduled maintenance shutdowns at its production facility in Yanbu. Despite this operational challenge, the company saw an improvement in base oil cracking margins, which helped mitigate the impact of lower sales volumes on overall profitability.
General context and operational background of Luberef
Luberef, established as a joint venture between Saudi Aramco and Jadwa Investment, is one of the world’s largest producers of high-quality base oils. Operating two production complexes in Jeddah and Yanbu, the company plays a pivotal role in meeting domestic and global demand for base oils used in engine lubricants and industrial and marine applications. Luberef has attracted significant investor interest following its successful initial public offering on the Saudi Stock Exchange in late 2022, making its financial results a closely watched topic by analysts and shareholders.
Economic importance and impact
Domestically, Luberef’s performance reflects the health of the Saudi Arabian industrial sector and its ability to adapt to operational and market changes. The company is also a key contributor to achieving the goals of Saudi Vision 2030, which aims to diversify the economy and increase local content in advanced industries. Regionally and internationally, any change in Luberef’s production capacity, even if temporary and planned, could affect the supply and demand balance in global base oil markets, especially given its position as a major player and a reliable supplier of high-quality products.
Recommendation to distribute cash dividends
Despite lower profits, Luberef’s board of directors recommended a cash dividend of SAR 588.91 million for the second half of 2023, amounting to SAR 3.5 per share. This brings the total proposed dividend for the full year 2023 to SAR 4.5 per share, representing approximately 70% of the company’s free cash flow. This recommendation reflects confidence in the company’s financial strength and its commitment to a sustainable dividend policy aimed at delivering a rewarding return to shareholders.
