Aramco's Downstream to Support Strong Results

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Saudi Aramco is expected to continue a trend of delivering strong financial results into 2022 as oil prices remain well above $100 per barrel with widening downstream margins providing an additional boost, analysts say.

The median net income forecast for Aramco’s first-quarter net profit stands at $38.5 billion, a steep year-on-year increase according to 12 analysts' forecasts.

The state oil giant recorded a net profit of $21.7 billion in the same period in 2021. Aramco is expected to announce the financial results for the first three months of the year on May 15, followed by a detailed breakdown of the financial results a day later.

The present buoyant market environment has already helped push up Aramco's market capitalization to above $2 trillion, making it the most valuable company in the world ahead of US tech giant Apple.

“High oil prices and downstream margins will really help Aramco record much higher profits this year,” said a Saudi-based analyst.

The analyst estimates Aramco's downstream profit for the first quarter to climb to around $5 billion — compared with $4.4 billion in the same period in 2021.

Reversing Fortunes

For Aramco's downstream sector, the results represent a major reversal of fortunes since 2020. In first-quarter 2020, Aramco's downstream sector recorded a loss of around $5 billion, which represented one of the weakest business segments for the company.

In the current market conditions, limited spare capacity in refined products has propelled margins and thus the profitability of refineries. Aramco’s acquisition of the kingdom’s petrochemical giant Saudi Basic Industries Corp., completed in mid-2020, is helping its downstream profits.

With its bumper profits, Aramco is pushing ahead with its upstream expansion projects in oil and gas. Contractors also say that the company is working to boost the capacity of its oil export terminals across the country.

Capex Commitment

Aramco plans capital expenditure of $40 billion-$50 billion this year, up from $31.9 billion last year.

To put that into perspective Exxon Mobil plans capital spending of $21 billion-$24 billion in 2022, while Shell has said its capex will fall at the low end of its medium-term guidance for annual capex of $23 billion-$27 billion.

Aramco said it would allocate roughly one-third of its 2022 budget each to oil, gas and downstream projects.

Downstream was in focus this week, with Aramco announcing on May 12 that it was exploring further collaboration with Thailand’s national oil company PTT as it expands its downstream presence in Asia, its key consumer region.

The two companies signed a memorandum of understanding at a ceremony in Bangkok on May 11 with the goal of strengthening cooperation across crude oil sourcing and the marketing of refined and petrochemical products as well as LNG, which Aramco trades but does not produce.

Other potential areas include blue and green hydrogen as well as various clean energy initiatives.

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