Aramco posts record second-quarter profit on higher oil prices

Company recorded a net income of $48.4bn and declared a $18.8bn dividend to be paid in the third quarter

Branded oil tanks at a Saudi Aramco oil facility in Abqaiq, Saudi Arabia. Reuters

Saudi Aramco, the world's largest oil-producing company, said second-quarter net profit surged more than 90 per cent on higher crude prices, volumes sold and higher refining margins.

Net profit after zakat for the three-month period to the end of June increased to $48.4 billion, from about $25.5bn 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 second-quarter of this year increased about 23 per cent from the first quarter of 2022.

Aramco plans to pay a second quarter dividend of $18.8bn in the third quarter. It paid the same amount in the second quarter.

Net income for the first half of the year increased 86 per cent to $87.9bn from the same period of 2021, due to higher crude oil prices, volumes sold and improved downstream margins.

“Our record second-quarter results reflect increasing demand for our products — particularly as a low-cost producer with one of the lowest upstream carbon intensities in the industry,” said Aramco president and chief executive Amin Nasser.

“We are progressing the largest capital programme in our history, and our approach is to invest in the reliable energy and petrochemicals that the world needs, while developing lower-carbon solutions that can contribute to the broader energy transition.”

Both the Brent and West Texas Intermediate oil benchmarks have continued to rally this year after gaining more than 60 per cent in 2021, 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 $98.15 a barrel, gaining more than 26 per cent year-to-date. WTI, the gauge that tracks US crude, ended the week at $92.09 a barrel and is up more than 22 per cent since the start of this year.

Owing to Ukraine war-related trade and production disruptions, the price of Brent is expected to average $103.88 a barrel this year, its highest level since 2013, according to the International Monetary Fund. This is about 50 per cent higher than the 2021 average, with prices expected to fall to $91.07 in 2023.

Even with rising concerns about a potential global recession as a result of the Ukraine war, and rising inflation that have derailed the momentum of the economic recovery from the pandemic, data points to oil demand holding up in the third quarter of this year at an average of 100.3 million barrels per day, from 98.7 million bpd in the second quarter, according to MUFG Bank estimates.

MUFG forecasts that Brent will average of $118.88 a barrel in 2022 and $106.13 next year. It estimates WTI will end this year at an average of $114.59 a barrel and $102.25 in 2023.

Geopolitics, higher energy prices and inflation prompted the IMF last month to lower its growth estimate for the global economy this year to 3.2 per cent and 2.9 per cent in 2023, revising it down 0.4 and 0.7 percentage points from its April forecast, respectively. This compares with a 6.1 per cent expansion last year.

“While global market volatility and economic uncertainty remain, events during the first half of this year support our view that ongoing investment in our industry is essential — both to help ensure markets remain well supplied and to facilitate an orderly energy transition” Mr Nasser said.

“In fact, we expect oil demand to continue to grow for the rest of the decade, despite downward economic pressures on short-term global forecasts. But while there is a very real and present need to safeguard the security of energy supplies, climate goals remain critical, which is why Aramco is working to increase production from multiple energy sources — including oil and gas, as well as renewables, and blue hydrogen.”

Aramco's revenue for the second quarter of the year rose about 80 per cent to nearly $150bn from the same quarter a year earlier. Revenue increased about 20 per cent from the first three months of 2022.

Cash flow from operating activities increased to $44bn and free cash flow increased 53 per cent year-on-year to $34.6bn.

Free cash flow increased 59 per cent to $65.2bn during the first half of 2022 from the same period in 2021. This increase was mainly driven by higher cash from operating activities.

The company's gearing ratio was reduced to 7.9 per cent at the end of June from 14.2 per cent at the end of last year, indicating cash flow should continue to benefit from higher oil prices this year.

Return on average capital employed during the second quarter was 31.3 per cent, compared to 16.7 per cent for the same periods in 2021.

Capital expenditure increased 25 per cent to $9.4bn in the second quarter and by 8 per cent to $16.9bn in the first half of 2022, compared to the same periods in 2021.

Aramco is expanding its chemicals business and developing prospects in low-carbon businesses while also pressing forward with the integration of its upstream and downstream segments.

The company continues to work on increasing its maximum crude oil capacity to 13 million barrels of oil per day by 2027 from 12 million barrels of oil per day.

"Aramco unsurprisingly delivered an exceptional set of numbers as it reaps the benefits of elevated oil prices, demand recovery amidst global supply gaps and an expansion in refining/downstream margins, though it is a relatively marginal segment when compared to the scale of the upstream segment," EFG Hermes said in a research note on Sunday. "Overall, we think the market is pricing in these solid fundamentals."

In April, 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 last year from operations, beyond any other oil company globally, the rating agency said.