The Kingdom of Saudi Arabia controlled Saudi Aramco Oil reported on Monday second quarter earnings of 112.81 billion Saudi riyals, roughly $30.08 billion down from $48.44 billion in the same period last year. The result came in slightly above the $29.8 billion expected. Aramco’s profit was affected by weakening refining and chemicals margins with the lower oil prices in the quarter. In 2022 the oil giant earned $US161 billion, the highest-ever recorded annual profit by a publicly listed company drew immediate criticism from activists. Aramco’s shares have risen more than 10% this year, were up 1.2% Monday at $8.6.
Aramco is majority owned by the Saudi Arabian royal family
The company said it would pay a dividend of $29.4 billion for the second quarter, including a performance-linked portion, up from a regular dividend of $18.8 billion a year earlier amid a move by international oil companies to boost payouts to shareholders even as profit declined. Aramco said in May it would introduce an additional dividend tied to its annual financial performance, basing it on the company’s free cash flow.
This payment is 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’s free cash flow to $23.16 billion from $34.61 billion in the previous year. It had increased to a record $148.5 billion in 2022, compared to $107.5 billion in 2021.
Aramco Q2 2023 Earnings
Highlights
- Aramco crude production was 11.5 million barrels a day in 2022, forecasted 13 million barrels a day by 2027.
- Free cash flow fell to $23.16 billion from $34.61 billion in the previous year.
- Total capital expenditure in 2022 was up 18% year on year, at $37.6bn. Plans to spend $45bn to $55bn in 2023 billion this year on capital projects.
- Declared a dividend of $US29.4 billion for the second quarter of 2023.
Net income for the first half of the year fell nearly 30% to $61.96 billion from the same period last year as a result of lower crude-oil prices and weakening refining and chemicals margins.
Aramco in talks with banks to raise cash by selling more shares through a secondary listing, people familiar with the matter say. Neither Aramco or the government have commented on the plan.
Saudi Arabia, the world’s largest oil exporter, is using the money to boost its economy and jump-start projects proposed by Crown Prince Mohammed bin Salman, who runs the kingdom’s day-to-day affairs for his father, King Salman. The kingdom is trying to diversify away from oil by creating new industries such as tourism, mining and auto manufacturing. Analysts estimate KSA needs to keep prices above the $80-a-barrel level to finance the crown prince’s economic overhaul plans.
Saudi Arabia and other Gulf states have also used their windfall oil income to help crisis-racked neighbors such as Egypt, Pakistan and Turkey, a diplomatic tool they have long used to build their geopolitical power.
Saudi Aramco raised its official selling prices for September for all regions except North America, with the highest increases targeting grades bound for northwest Europe. The rises were expected despite a request by several Asian refiners for Aramco to roll over or cut the OSP differentials, following two consecutive months of increases for most of its grades.
Production
Saudi Arabia on Thursday said the kingdom would extend a production cut of 1 million barrels of oil a day into September, after reducing output by the same amount in July and August in an attempt to prop up prices. The cut has taken Saudi Arabia’s output to 9 million barrels a day, a level that is the lowest since June 2021 and rarely seen in the past 10 years.
Saudi Aramco production represents about 10 per cent of the world’s crude supply.
Saudi oil exports were already down by almost 40% in May from the same period a year ago, recent data from the kingdom’s General Authority for Statistics shows. The value of oil exports declined to about $19.2 billion in May from $30.8 billion last year, the authority said.
The International Monetary Fund last month cut its 2023 growth projection for Saudi Arabia to 1.9%, from almost 9% in 2022, on prolonged production cuts.
ESG Initiatives
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 2023 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 last year.
Amnesty International’s secretary-general, Agnès Callamard, criticized Aramco’s annual profit coming amid global concerns about climate change.
“It is shocking for a company to make a profit of more than $US161 billion in a single year through the sale of fossil fuel — the single largest driver of the climate crisis,” she said in a statement. “It is all the more shocking because this surplus was amassed during a global cost-of-living crisis and aided by the increase in energy prices resulting from Russia’s war of aggression against Ukraine.”
“These extraordinary profits, and any future income derived from Aramco, should not be deployed to finance human rights abuses, cover them up, or try and gloss over them,” she said.
Expanding Downstream Operations
- In 2022 Aramco acquired 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.
IPO History
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