Aramco first quarter profit surges on higher oil prices

Net income of the world's largest oil producing company increased 82% to $39.47bn from the same period a year earlier

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Saudi Aramco, the world's largest oil-producing company, said first-quarter net profit surged about 82 per cent on higher crude prices, volumes sold and improved downstream margins.

Net profit after zakat for the three-month period to the end of March increased to $39.47 billion, from $21.72bn in the year-earlier period, the national oil company of Saudi Arabia said on Sunday, in a regulatory filing to the Tadawul stock exchange, where its shares are traded.

The quarterly earnings are a record for the company since its initial public offering in 2019. Net income for the first quarter of this year increased 22 per cent from the fourth quarter of 2021.

Aramco plans to pay a first quarter dividend of $18.8bn in the second quarter and has approved the distribution of one bonus share for every 10 shares held in the company.

“Against the backdrop of increased volatility in global markets, we remain focused on helping meet the world’s demand for energy that is reliable, affordable and increasingly sustainable," said Aramco president and chief executive Amin Nasser.

Both the Brent and West Texas Intermediate (WTI) oil benchmarks have gained more than 60 per cent since last year, supported by vaccination drives in developed economies, a rebound in the travel industry as countries relax restrictions and the war in Ukraine that has stoked soaring commodities prices.

Brent, the global benchmark for two thirds of the world's oil, ended trading last week at $111.5 a barrel, while WTI, the gauge that tracks US crude, ended the week at $110.5 a barrel.

Owing to the Ukraine war-related trade and production disruptions, the price of Brent is expected to average $100 a barrel this year, its highest level since 2013, the World Bank has said. Some investment banks estimate oil prices will average between $120 to $135 a barrel this year.

Geopolitics, higher energy prices and inflation prompted the International Monetary Fund last month to lower its growth estimate for the global economy this year to 3.6 per cent and in 2023, revising it down 0.8 and 0.2 percentage points from an earlier forecast.

“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 by capitalising on our low lifting cost, low upstream carbon intensity, and integrated downstream business," Mr Nasser said.

“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."

Aramco's revenue for the first three months of the year rose about 72 per cent to nearly $125bn from the same quarter a year earlier. Revenue increased about 16 per cent from the fourth quarter of 2021.

Cash flow from operating activities increased 44 per cent in the first quarter to $38.2bn from the same period in 2021. Free cash flow increased 68 per cent year-on-year to $30.6bn. The company's gearing ratio was reduced to 8 per cent in the first quarter from 14.2 per cent at the end of last year, indicating cash flow should continue to benefit from higher oil prices this year.

On Sunday, the company said its shareholders approved a board recommendation to increase capital by way of granting bonus shares through the capitalisation of 15 billion Saudi riyals ($4bn) from the company’s retained profits.

The shareholders will be given one share for every 10 they own. The company's share capital will increase 25 per cent to 75bn riyals and the number of shares will rise from 200 billion to 220 billion, it said.

Last Wednesday, Aramco surpassed Apple to become the world’s most valuable company when its market value reached $2.43 trillion. Apple shares dropped about 5.2 per cent on May 11 to $146.5 a share at the close of trading, giving the iPhone maker a market value of $2.37tn.

Aramco's share price jumped 4.2 per cent following its earnings announcement, boosting its market value to $2.48tn at the close of trading on Sunday in the kingdom. Whereas Apple's market value at the end of trading on Friday was $2.38tn

Aramco's shares are up 31 per cent since the start of the year, while Apple's shares have dropped more than 19 per cent in the same period.

Aramco listed its shares on the Saudi Stock Exchange, Tadawul, in 2019, raising $25.6bn and later selling more shares, boosting the total to $29.4bn.

Last month, Fitch Ratings revised Aramco's outlook to positive from stable following a similar rating action on the sovereign ratings of the kingdom. Aramco generated almost $150bn in funds from operations beyond any other oil company globally, the rating agency said.

On Sunday, Aramco said capital expenditure was $7.6bn in the first quarter and it expects levels to grow until about the middle of the decade, in line with the company's long-term strategy.

Fitch estimates Saudi Aramco's annual capital expenditure will increase to $40bn-50bn in 2022, compared to $32bn in 2021, on the back of its efforts to increase oil production capacity by 1 million barrels of oil a day (bpd) to 13 million bpd by 2027, as mandated by the government, as well as other strategic initiatives, including gas production, liquids to chemicals production, and green projects.

Last week Aramco said it was exploring further collaboration with Thailand’s national oil company PTT, as it expands its downstream presence in Asia.

The two companies signed a preliminary agreement on May 11 to strengthen co-operation across crude oil sourcing and the marketing of refining and petrochemical products and liquefied natural gas.

Other potential areas of activity include blue and green hydrogen and various clean energy initiatives.

Updated: May 15, 2022, 4:20 PM