The majority of major energy companies have been decreasing or keeping Capital Expenditure flat for a multitude of reasons, including ESG policy, politics, lack of access to credit. However Saudi Arabian Oil Co., aka Aramco, who just overtook Apple as the world’s biggest company, plans to increase this year’s capital expenditures to $40-50 billion from nearly $32 billion in 2021. Aramco also aims to reduce its global footprint as it moves to achieve net-zero greenhouse gas emissions across the portfolio by 2050.
Aramco is majority owned by the Saudi Arabian royal family, and has been working towards a number of environmental, social and governance (ESG) initiatives underway to reduce its global footprint as it moves to achieve net-zero greenhouse gas emissions across the portfolio by 2050. That movement came about after the company was listed publicly on the Tadawul exchange.
Mindful that the Kingdom finds itself in with soaring oil and gas prices CEO Amin H. Nasser said “Energy security is vital, and we are investing for the long term.” Aramco is expanding “oil and gas production capacity to meet anticipated demand growth and creating long-term shareholder value by capitalizing on our low lifting cost, low upstream carbon intensity, and integrated downstream busines
Aramco Record Earnings
For the first quarter of 2022 Aramco announced an 82% increase in year/year net income to $39.5 billion (17 cents/share), a quarterly earnings record since the initial public offering in 2019. This was up from Q1 of 2021 net income of $21.7 billion (10 cents/share).
- Operating cash flow rose to $38.2 billion from $26.5 billion.
- Free cash flow jumped 68% to $30.6 billion.
- The debt-to-equity ratio fell to 8% at the end of March from 14% at the end of 2021.
- Upstream Hydrocarbon production was 13 million boe/d in 1Q2022. In the year-ago quarter, average output was 11.5 million boe/d. During 2021, output averaged 12.3 million boe/d.
- Dividend of $18.8 billion in the second quarter unchanged.
- Aramco plans to distribute one bonus share to stockholders for every 10 shares held. Most of the payout would be to the KSA given it owns the majority of shares.
With the war in Russia and the tension in OPEC+ no doubt Aramco remembers back in 2017 the problems with the failure of oil to substantially recover and Russia then overtaking Saudi Arabia as the leading exporter of crude to China the Kingdom. They stepped up talks with some of the world’s largest sovereign wealth funds and institutional investors for the Aramco IPO. In the end we saw a smaller IPO and only on the Saudi stock market, much the result of a collapsed oil price.
From there we had the Covid19 demand crunch which was not expected and as we opined at the time what should have been expected was Russia’s betrayal of the price agreement. Fast forward and Russia have invaded Ukraine and after poorly thought ESG populist policy not enabling sound energy transition causing oil prices to spike higher before the war.
We see a more aware Aramco in 2022 with it’s flagship iktva program aims to build a “diverse, sustainable and globally competitive” supply chain to supply the Kingdom’s energy sector.. “As we collaborate with domestic and international partners to explore new and emerging technologies and solutions, from developing cleaner transport technologies to establishing low-carbon hydrogen and ammonia value chains, I am more optimistic than ever about the positive contribution we can make, both to our customers and to the ongoing global energy transition,” Nasser said.
Expanding Downstream Operations
- Aramco is acquiring a 30% stake in a 210,000 b/d refinery in Gdansk, Poland, along with sole ownership of an associated wholesale business.
- Aramco agreed to acquire a half-stake in a Polish jet fuel marketing joint venture with BP plc.
- Aramco also made a final investment decision to participate in developing a 300,000 b/d integrated refinery and petrochemical complex in China.
- Downstream consumed almost 45% of Aramco’s crude production during 1Q2022.
- The company also achieved 99.9% reliability “in its deliveries to customers” in the quarter.
Natural Gas Expansion
Natural gas output is on track to grow by 50% in 2030 with expansions in the country’s Haradh and Hawiyah fields. The projects, scheduled to be onstream by year’s end, would increase gas compression by 1.3 Bcf/d. Furthermore, the Hawiyah Gas Plant expansion, part of the Haradh Gas increment program, should ramp up in 2023.
Capital spending in 1Q2022 was $7.6 billion, down by 10% from 1Q2021, “mainly due to certain gas projects nearing completion,” management said. Capital outlays are set to increase “until around the middle of the decade, to support the company’s long-term strategy realization.”
Aramco completed a lease and leaseback deal for its natural gas pipeline network with an investor consortium led by BlackRock Real Assets and Hassana Investment Co. With an upfront payment of $15.5 billion, the consortium acquired a minority (49%) stake in a new subsidiary, Aramco Gas Pipelines Co.
Nasser said by maximizing in “high-growth areas …. Aramco captures additional value across the hydrocarbon chain, expands its sources of earnings, and provides resilience to oil price volatility.”
Voluntary Carbon Market
The Kingdom established a voluntary carbon market (VCM) with the Public Investment Fund, the country’s sovereign wealth fund. A memorandum of understanding in March makes Aramco one of five inaugural partners in the Middle East and North Africa regional voluntary carbon market (VCM).
The VCM is the first of its kind in the region, is to serve as a platform to buy, sell and trade verified carbon equivalent credit certificates.
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Sources: Financial Times, WSJ, Ellen Wald, TC
From The TradersCommunity News Desk