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Saudi Aramco doubles profits amid higher crude prices

17:32, 21 March 2022

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Saudi Aramco company logo
Saudi Aramco company logo – Photo: Shutterstock

As the world emerged from the Covid-19 pandemic in 2021, Saudi Aramco more than doubled its yearly net profits, reporting a full-year net income of $110bn (£83.55bn), up 124% from 2020 earnings of $49bn.

Shares of the world’s largest oil company increased by nearly 4% in trading Sunday on Saudi's Tadawal Exchange after the results were revealed.

Saudi Aramco declared a Q4 dividend of $18.8bn stemming from a free-cash flow boost of $107.5bn during the year. The dividend should be paid during the current quarter. 

 

Aramco profited from the surging oil prices in 2021. Towards the end of 2021, Brent, the international benchmark, was above $80 a barrel and West Texas Intermediate only a few dollars down. Those prices were before Russia's invasion of Ukraine in February, which sent prices to record highs and left traders fearful about escalating prices.

Aramco is recommending that $4bn in retained earnings be used to pay bonus shares to investors, pending approval. The recommendation states investors receive one bonus share for every 10 shares owned, totalling $75bn in cash in total 2021 dividends, company officials said during a conference call on Sunday.

Aramco credited stronger oil prices as demand recovered after plummeting at the beginning of the Covid-19 pandemic. Additionally, the Dhahran-based oil giant said consolidating its chemical unit and better than expected margins within its refinery and chemical divisions helped push up profits.

“Our strong results are a testament to our financial discipline, flexibility through evolving market conditions and steadfast focus on our long-term growth strategy, which targets value growth for our shareholders,” Aramco CEO Amin Nasser said in the results press release.

“Although economic conditions have improved considerably, the outlook remains uncertain due to various macro-economic and geopolitical factors,” Nasser said.

His comments came days after the International Energy Agency warned oil markets were heading for “the biggest supply crisis in a decade” after a series of Russian sanctions and oil companies steering clear of its crude.

Within the kingdom, there’s also uncertainty. An ongoing war with Houthi rebels in neighbouring Yemen has caused damage to many oil-producing facilities within the kingdom.

On Sunday, rebels used drones and missiles to target at least six production facilities including a liquified natural gas refinery and a fuel depot, according to Al Jazeera.

“There were no injuries or fatalities and no impact on the company’s supplies to customers,” Nasser said, but the constant attacks are taking a toll on the Kingdom, reports state.

Kingdom officials warned of increased pricing after the attack declaring “that it will not bear any responsibility for any shortage in oil supplies to global markets in light of the attacks on its oil facilities,” officials said via the Saudi Press Agency.

Capital spending

Oil and natural gas remain the primary focus of capital spending, jumping to $50bn in 2022. The 18% increase is geared towards the Tanajib Gas Plant and developing a drilling program, company documents show.

The capital investment boost shows company leadership's faith in a continued need for oil and gas over the next several years. In investor documents, the company said it plans investments in carbon-reducing technologies for future oil sales, including placing chips in low-carbon hydrogens and holding carbon dioxide underground.

The Saudi Press Agency, the state-run media outlet, said Aramco is headed to increasing oil output capacity to 13 million barrels each day and is boosting its liquid and chemical production by 2027. The company plans to more than double its gas production by 2030.

“We recognize that energy security is paramount for billions of people around the world, which is why we continue to make progress on increasing our crude oil production capacity,” Nasser said.

Shale fields

The kingdom is estimated to hold the world’s fifth-largest reserves of shale gas but it has done little to explore.

A large shale gas field in the eastern part of the country is being developed, company officials said.

Aramco plans to invest $100 bn in the Jafurah shale gas field over time, increasing the gas flow by more than 50% by 2030. It’s estimated that Jafurah contains 200 trillion cubic feet of gas, making it the world’s largest shale gas play outside of the US.

Reports state the play measures about 105 miles long and 62 miles wide, similar to the Eagle Ford field in the US, its second-largest shale gas field.  

When it comes online in 2024, the onshore gas field will mainly supply natural gas for domestic power generation and feedstock for Saudi Arabia’s petrochemical production.  

The development is part of the country’s Vision 2030 initiative to diversify the kingdom’s economy away from oil dependency.  

Going green 

In the past, Aramco said it will cut greenhouse gas emissions. The company plans to reach net-zero Scope 1 and Scope 2 across all its wholly-owned operations by mid-century.  

According to the US EPA, Scope 1 are direct emissions from sources owned or controlled by the company, while Scope 2 covers indirect emissions from the generation of purchased power consumed by the company. 

When Aramco went public in December 2019, it made history as the most successful public offering, raising $25.6bn. However, the country set valuation range was between $1.7tn and $2tn. 

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