Mon | Jul 26, 2021

Saudi oil firm Aramco sees 30% spike in profit

Published:Wednesday | May 5, 2021 | 12:17 AM
A trader talks to others in front of a screen displaying Saudi stock market values at the Arab National Bank in Riyadh, Saudi Arabia, on December 12, 2019.
A trader talks to others in front of a screen displaying Saudi stock market values at the Arab National Bank in Riyadh, Saudi Arabia, on December 12, 2019.

Saudi Aramco said Tuesday its profits soared by 30 per cent in the first quarter of the year, compared to last year, riding on the back of higher crude oil prices. The results come as some of the world’s biggest economies are clawing their way out of recession and easing restrictions amid vaccine rollouts against COVID-19.

The company’s financial results show a net income of US$21.7 billion for the first three months of the year, compared to the same period in 2020 when Aramco’s earnings plunged to US$16.7 billion as the early effects of the coronavirus pandemic were beginning to dramatically drive down global demand for oil. Brent crude plummeted to around US$20 a barrel at its lowest point last year.

Aramco’s CEO Amin Nasser said the first-quarter earnings are a sign that “better days are coming”.

“While some headwinds still remain, we are well-positioned to meet the world’s growing energy needs as economies start to recover,” he said.

The Saudi Arabian Oil Company said the increase in profits primarily reflects the impact of higher crude oil prices, which have averaged around US$60 a barrel in recent months. Prices have steadily climbed amid increased global demand for crude and disciplined cuts by producers to balance the market.

Aramco produced some 9.2 million barrels a day in 2020, compared to a current average of 8.6 million barrels a day for the first-quarter of 2021.

The company confirmed it would deliver on a promised dividend payout of US$18.75 billion for its shareholders this quarter, or what amounts to US$75 billion a year. Nearly all of that payout goes to the Saudi government, which owns more than 98 per cent of the company, with the remaining 1.7 per cent trading on the Saudi stock market.

The payout, however, slightly exceeds Aramco’s current cash flow of US$18.3 billion. Aramco saw its full-year profits nearly halved in 2020 to US$49 billion, down from US$88 billion in 2019 and US$111 billion in 2018.

Still, the Saudi company remains one of the world’s most valuable companies.

Aramco’s higher earnings will come as welcome relief to the Saudi government, which continues to rely heavily on the company’s barrels of oil for revenue.

The Saudi government announced Tuesday that state revenue was up by about US$3.5 billion in the first quarter, reaching US$54.6 billion. Oil revenue contributed to US$31 billion of that, or 57 per cent of the state’s revenue for the first three months of the year.

The kingdom plans to spend US$263 billion in 2021, according to its budget.

Aramco, which produces all of the kingdom’s oil and gas, is central to Crown Prince Mohammed bin Salman’s efforts at diversifying the economy away from heavy reliance on oil for revenue. The prince intends to transfer ownership of Aramco to the country’s sovereign wealth fund and use the earnings for investments with the aim of spurring new sectors and generating millions of new jobs for Saudi youth.

The company noted in its earnings report that while vaccination programmes around the world to combat COVID-19 are an encouraging development, the pandemic is far from over.

The company recently announced a US$12.4-billion deal to sell leasing rights over its oil pipelines to a consortium of investors led by EIG Global Energy Partners. The sale is aimed at raising money to maintain Aramco’s dividend commitment to shareholders.

“All this is about generating more cash out of Aramco. Ninety-nine per cent of that dividend, of course, goes to the Saudi government and is very important for funding its activities,” said CEO of Dubai-based Qamar Energy.

Prince Mohammed revealed in an interview last week there are talks to sell a one per cent stake of Aramco to a leading global energy company. While he did not reveal further details, speculation has swirled around potential buyers from China, which is the world’s largest importer of oil.