Saudi Aramco profits rise as oil prices and production rise

By : Franyi Sarmiento, Ph.D., Inspenet, May 17, 2022.

Saudi Aramco posted its biggest profit since its record stock market listing, after oil prices surged following the Russia-Ukraine conflict.

Aramco, which last week overtook Apple Inc. to become the world’s most valuable company, it trailed big oil rivals such as Shell Plc and BP Plc in reporting extraordinary first-quarter earnings. Like them, the Saudi firm’s results were boosted by crude’s jump to $110 a barrel following the Moscow attack in late February.

State-controlled Aramco had net income of $39.5 billion, up 82% from a year earlier, when global energy demand was still severely suppressed by the coronavirus pandemic.

The company’s free cash flow rose to nearly $31 billion, though it opted to keep its quarterly dividend unchanged at $18.8 billion. That allowed Aramco to reduce its leverage. Leverage, a measure of debt to equity, fell from 14% in December to 8% at the end of March. The gauge soared above 20% during the pandemic as profits plummeted, forcing Aramco to borrow more.

Aramco has benefited this year not only from oil’s rise of about 45%, but also from Saudi Arabia’s gradual increase in production along with other OPEC+ members. The kingdom’s crude output averaged 10.2 million barrels per day between January and March, up 20% year-on-year.

Output is supposed to keep growing until at least September, when the current deal between the Organization of the Petroleum Exporting Countries and its partners, a 23-nation group led by the Saudis and Russia, expires.

Aramco shares rose 4.2% to close at 42.35 riyals on Sunday, extending its gain this year to 30%. The company raised nearly $30 billion with an initial public offering in Riyadh in late 2019, though it is still 98% government-owned. It is now valued at $2.48 trillion.

Earnings topped analysts’ average estimate of $38.5 billion, according to a forecast compiled by the company.

Saudi Arabia is one of the few major oil producers trying to increase production capacity. Many others are cutting back on exploration as they switch to renewable energy and try to reduce their greenhouse gas emissions. The Saudis attributed the rise in prices to falling investment and said demand for oil and gas will remain strong for decades.

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