Aramco posts $32 billion profit in line with estimates

World's largest oil-producing company plans to introduce performance-linked dividends, in addition to the base dividend that it currently distributes

Aramco oil tanks in Abqaiq, Saudi Arabia. Reuters

Saudi Aramco, the world's largest oil-producing company, said first-quarter net profit softened on lower crude prices, although the results were in line with analyst expectations.

Net profit after zakat for the three-month period to the end of March fell to about $32 billion, from $39 billion in the same period a year earlier, the national oil company of Saudi Arabia said on Tuesday, in a regulatory filing to the Tadawul stock exchange, where its shares are traded.

Aramco plans to pay a first quarter dividend of $19.5 billion in the second quarter.

On Tuesday, the company said it plans to introduce performance-linked dividends, in addition to the base dividend that it currently distributes.

Aramco said it expects such performance-linked dividends to be in the amount of 50 per cent to 70 per cent of its annual free cash flow, net of the base dividend and other amounts, including external investments, to be determined with the annual results.

“The results reflect Aramco’s continued high reliability, focus on cost and our ability to react to market conditions as we generate strong cash flows and further strengthen the balance sheet,” said its president and chief executive Amin Nasser.

“We are also moving forward with our capacity expansion, and our long-term outlook remains unchanged as we believe oil and gas will remain critical components of the global energy mix for the foreseeable future.”

The company also aims to be a “reliable energy supplier” while supporting efforts to achieve an “orderly energy transition”, he said.

Brent, the benchmark for two thirds of the world’s oil, surged to about $140 a barrel last year following the start of Russia's war in Ukraine, gaining about 10 per cent in 2022, after jumping 50 per cent in 2021.

West Texas Intermediate, the gauge that tracks US crude, ended up about 7 per cent in 2022, following a 55 per cent surge in 2021.

However, the world's biggest benchmarks for oil have given up gains due to a regional banking crisis in the US that rattled markets, rising concerns about a US recession and lower crude demand, as well as uncertainty about China's economy, the top importer of oil globally.

Brent is down about 11 per cent since the start of this year and 27 per cent lower over the past year as of Tuesday.

WTI is about 10 per cent lower year to date and down 27 per cent over the past year.

In an interview with Bloomberg TV last week, Amrita Sen, the co-founder and director of research at Energy Aspects, said concerns over a slowdown in China were “overblown” and that the productions cuts of Opec+ announced last month needed time to materialise.

Goldman Sachs expects Brent to rise to $95 a barrel by December of this year and $100 a barrel by April 2024 as it expects large deficits in the second half of 2023.

Last month, the International Monetary Fund lowered its growth forecast for the global economy by 0.1 percentage point to 2.8 per cent and said it faced a “rocky” recovery due to geopolitics, monetary tightening and inflation.

Despite the IMF's estimates, Goldman Sachs said in a report on Saturday that its economists saw only a quarter to half of a percentage point growth hit from bank stress in the US as large banks remain healthy.

Recent data confirmed US job growth remains strong.

“While global industrial activity is weak, the purchasing manager indexes also suggest that services activity is still expanding very rapidly in China and fairly rapidly elsewhere,” it said.

Aramco's shares were up 8.2 per cent since the start of the year as of market close on Thursday, May 4, giving the company a market value to $2.06 trillion.

Aramco's share price surged more than 7 per cent at the start of trading on Tuesday, following its earnings announcement.

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

Aramco's revenue for the first three months of the year reached more than $111.3 billion, compared with $124.5 billion in the same quarter a year earlier.

Cash flow from operating activities increased nearly 4 per cent in the first quarter to $39.6 billion from the same period in 2022.

Free cash flow was broadly steady at $30.9 billion. The company's gearing ratio was at 10.3 per cent in the first quarter, from 7.9 per cent at the end of 2022.

Aramco's annual capital expenditure rose 18 per cent annually to about $38 billion last year from 2021, due to continuing crude oil increments and other development projects.

The company expects its 2023 capital expenditure to be between $45 billion and $55 billion in 2023, with the amount increasing until about the middle of the decade.

The increase is largely driven by Saudi Aramco's efforts to increase maximum sustainable capacity by one million barrels of oil a day to 13 million bpd by 2027, from 12 million bpd, as well as other strategic initiatives such as gas and liquids to chemicals production, as well as green projects.

Aramco has previously reduced capex in response to low oil prices, and Fitch Ratings said it believes that the company will retain this flexibility and continue to generate strong pre-dividend free cash flow, even under our moderating assumptions for oil prices.

Last month, Fitch Ratings upgraded Aramco's rating to “A+”, from “A”, with a stable outlook.

The company had $135 billion in cash, cash equivalents and short-term investments at the end of 2022 which more than covers its one-year debt maturities of $17 billion, excluding leases.

In 2021, Aramco announced its plans to achieve net-zero carbon emissions by 2050 after the kingdom said it aimed to neutralise its emissions by 2060.

Aramco's low cost base helps it offset its exposure to energy transitions risks, according to Fitch.

The company is investing in natural gas production, which is expected to grow by more than 50 per cent by 2030, while it aims for 12 gigawatts of net renewables capacity by 2030.

It also plans to have 11 million metric tonnes per annum of blue ammonia by 2030 and liquids-to-chemicals plants.