Strong Tailwinds Boost Aramco's Earnings

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Saudi Aramco has reported strong first-quarter earnings that will support its plans to expand its upstream capacity and pursue further downstream integration.

"Energy security is vital and we are investing for the long term, expanding our oil and gas production capacity to meet anticipated demand growth and creating long-term shareholder value," said CEO Amin Nasser.

The Saudi oil giant beat analysts' expectations, posting an 82% year-on-year increase in net profit for the first three months of the year to $39.5 billion — the highest quarterly profit since its initial public offering (IPO) in late 2019.

Aramco's earnings — boosted by strong oil prices, rising production levels and widening downstream margins — dwarf those of other oil majors.

League of Its Own

Capital spending during the first quarter dipped to $7.6 billion from $8.2 billion a year earlier, "mainly due to certain gas projects nearing completion," it said.

Earlier this year, the company provided capex guidance of $40 billion-$50 billion for 2022, up from actual spending of $31.9 billion in 2021.

Aramco said it expects capex to keep growing until the middle of the decade in support of its long-term strategy, which includes raising sustainable oil production capacity to 13 million barrels per day by 2027 from around 12 million b/d today.

Aramco’s total hydrocarbon production reached 13 million barrels of oil equivalent per day in the first quarter — the highest level since the fourth quarter of 2019.

The company's free cash flow for the quarter rose to $30.6 billion from $18.3 billion a year earlier — more than enough to cover regular quarterly dividends of $18.75 billion.

In March the company announced plans to distribute an additional $4 billion in retained earnings to shareholders in the form of additional shares.

But sources close to the company say management is now focused on reinvesting surplus cash in further growth of its upstream and downstream businesses.

Aramco's gearing ratio, a measure of how much debt it carries, fell to 8%, its lowest level since the company’s 2020 acquisition of a 70% stake in petrochemicals producer Saudi Basic Industries Corp. (Sabic).

Aramco — whose gearing has come down from a peak of 23% in late 2020/early 2021 — said it has repaid an $8 billion note issued to fund the Sabic acquisition.

Aramco’s share price has risen 25% since the end of 2021 and high oil prices have helped push its market capitalization above $2 trillion, making it the most valuable company in the world — ahead of US tech giant Apple.

Downstream Expansion

Because of limited global downstream capacity, margins for refined products have improved substantially in recent months, supporting Aramco's ambitions in that area.

"During the first quarter, our strategic downstream expansion progressed further in both Asia and Europe, and we continue to develop opportunities that complement our growth objectives," Nasser said.

In January, Aramco agreed to acquire a 30% stake in Poland's 210,000 b/d Gdansk refinery, along with sole ownership of an associated wholesale business. Aramco also agreed to acquire a 50% stake in a Polish jet fuel marketing joint venture with BP.

In China, Aramco made a final investment decision to participate in the development of a major integrated refinery and petrochemical complex.

The joint venture with North Huajin Chemical Industries Group Corp. and Panjin Xincheng Industrial Group includes a 300,000 b/d refinery.

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