Aramco 'well placed' to meet its $75bn dividend payout, BofA says

Oil prices are close to $70 per barrel as Opec+ left production cut policy unchanged

The kingdom mandated localisation requirements for all international partners in its energy sector. Bloomberg

Saudi Aramco, the world's biggest oil-exporting company, is "well placed" to raise its dividend guidance beyond $75 billion as oil prices are expected to breach $70 per barrel this year, Bank of America said in a note on Sunday.

"Our scenario analysis suggests that Aramco would be well placed to implement its higher dividend distribution guidance given during the IPO and even increase dividends beyond its minimum US$75bn pledge," the lender said.

Saudi Aramco will post its full-year results on March 21. The company has a commitment to its shareholders to make the largest dividend payout in the world, despite pressures put on the energy industry by the Covid-19 pandemic.

The company's third-quarter profit for 2020 slid 44.6 per cent amid lower crude prices and volumes, as well as weaker refining and chemical margins.

However, robust action by the Opec+ alliance of producers, which Riyadh heads along side Russia, has pushed the price of Brent close to $70 per barrel.

The benchmark under which two thirds of the world's oil is traded, settled 3.93 per cent higher at $69.36 per barrel on Friday, following the decision by Opec+ to rollover its current level of cuts until the end of April. West Texas Intermediate, which tracks US crude grades, closed the trading week 3.54 per cent higher at $66.09 per barrel.

Opec+ deferred an earlier planned output increase of 2 million bpd for January and will continue holding back 7.2m barrels per day, or 7 per cent of global oil supplies, from the market.

Saudi Arabia, which surprised markets with an extraordinary voluntary commitment to draw back 1m bpd in February, will extend the measure until the end of April.

The decision sent oil prices surging above 5 per cent on Thursday. Brent and WTI are riding a persisting supercycle of commodities and are nearly 36 per cent higher than at the start of the year.

Oil trading in a range between between $60 and $75 is favourable to Aramco's free cash flow and dividend policy, the BofA said in the note.

"We leave our price outlook on Aramco unchanged at 35 riyals [$9.33] a share and leave Aramco on 'neutral' as we believe that, at current valuation, higher oil prices are largely priced in," the bank said.

"We do believe, however, that in a bullish oil demand recovery scenario, Aramco is uniquely placed to surge volumes without corresponding increase in capex," it added.

Opec+ is now in charge of the bulk of global spare capacity, with Saudi Arabia and Aramco, in turn, remaining "one of the very few oil companies globally with the ability to surge production substantially without committing additional capex," BofA said.

Analysts are revising the expectations for oil prices higher as Opec+ keeps a tight lid on supply.

"We would expect then for production to continue to be restrained even if prices pushed considerably higher," Emirates NBD said in a note on Sunday.

The Dubai-based bank is assuming an average of $67.5 per barrel for Brent, with the benchmark expected to average $70 per barrel in the second quarter. Abu Dhabi Commercial Bank increased its Brent price forecast to $65.5 per barrel for 2021 and $67 per barrel for 2022.

"The higher oil price outlook is very positive for the GCC economies, both in terms of fundamentals and sentiment," Monica Malik, ADCB's chief economist wrote in a note on Sunday. "With the oil price above the pre-pandemic level (Brent crude averaged $64.2 per barrel in 2019), we now see a faster return of nominal GDP to 2019 levels, though this is still not likely until 2022."