The Kingdom of Saudi Arabia controlled Saudi Aramco Oil reported on Sunday record second quarter earnings of $US48.4 billion. The company estimate was $46.2 billion. Profits were up 90 per cent from $US25.5 billion a year earlier. The result follows big oil rivals record profits. The UK’s BP, Netherland’s Shell, America’s ExxonMobil, the largest U.S. oil company, Chevron, Phillips 66 and Occidental all crushed earnings on surging oil and gas prices. Oil prices have pulled back around 15% since suggesting these record profits may be high points.
The company said it would pay a dividend of $US18.8 billion, a key source of revenue for the Saudi government, as it has promised to do since its IPO when it floated around 5 per cent of the company on the Saudi stock market in late 2019.
Aramco is majority owned by the Saudi Arabian royal family
Aramco Q2 2022 Record Earnings
For the second quarter of 2022 Aramco’s net income rose to $US48.4 billion, up from $US25.5 billion a year earlier. The results were also up from the record first quarter earnings which were an 82% increase in year/year net income to $39.5 billion (17 cents/share), then 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).
- Net income rose to $48.4 billion in the second quarter, up from $25.5 billion a year earlier
- Revenue climbed 80% to $150 billion
- Free cash flow rose by 53% from a year earlier to $34.6 billion.
- Reduced gearing, to 7.9% from 14.2% at the end of 2021.
- On track to increase crude oil maximum sustainable capacity from 12 million barrels per day to 13 million by 2027.
Capital Expenditure and Debt Reduction
Aramco was well positioned to take advantage after raising capital expenditures to $40-50 billion from nearly $32 billion in 2021. The company is using the windfall to reduce debt and invest in a huge expansion of its production capacity. The International Monetary Fund projects the Saudi economy will grow by more than 7.6% this year, the highest globally.
Aramco “expects oil demand to continue to grow for the rest of the decade, despite downward economic pressures on short-term global forecasts” Chief Executive Officer Amin Nasser said. Hea added If aviation fuel demand picks up to pre-pandemic levels “that will put a lot of tightness in the market,” .”The world is calling out for affordable, reliable energy and we are answering that call,” he said, urging greater investments in oil and gas.
Last year, mindful of the position that the Kingdom finds itself in with soaring oil and gas prices CEO Amin H. Nasser said last year “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 business.
Aramco would have no problem producing 12 million barrels a day if asked to by the Saudi government, Nasser said. The company is on track to increase crude oil maximum sustainable capacity from 12 million barrels per day to 13 million by 2027.
Aramco could also have another 1 million barrels a day available for export by 2030 as the country looks to replace crude oil burning power stations with gas and renewable power.
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.
We see a more aware Aramco in 2022 with its 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.
The company is scheduled to release a more detailed breakdown of its results, including the performance of its upstream and downstream units, on Monday. The latest updates from Q1 are below:
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.
Aramco listed in Riyadh in 2019, 94% remains state-owned. With shares up 25% this year it has a market valuation of $2.4 trillion.
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.
Nasser said Aramco could sell shares in some of its units on the Saudi stock exchange as part of a “portfolio optimization” plan that has already seen it sell off stakes in subsidiaries that lease its oil and gas pipelines.
Aramco is considering a plan to list its trading unit, people familiar told Bloomberg in May.
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Sources: Bloomberg WSJ, Ellen Wald, TC
From The TradersCommunity News Desk