ARAMCO’S NET PROFIT SURGES 30% ON HIGHER OIL PRICES

▶ Company reports $21.7bn in income as revenue grows by more than a fifth

Saudi Aramco, the world’s largest oil company, said first-quarter net profit surged 30 per cent to $21.7 billion from the same period a year ago as oil prices increased and the economic environment improved.

The company beat the average estimate of $19.48bn by five analysts polled by Reuters and the $18bn forecast of those surveyed by Bloomberg.

Aramco plans to pay a dividend of $18.8bn in the second quarter.

“The momentum provided by the global economic recovery has strengthened energy markets, and Aramco’s operational flexibility, financial agility and the resilience of our employees have contributed to a strong first-quarter performance,” said Aramco’s president and chief executive Amin Nasser.

Both the Brent and West Texas Intermediate oil benchmarks have gained more than 30 per cent this year, supported by Covid-19 vaccination drives in developed economies, stimulus packages and relaxed restrictions in several countries.

The global economy is set to expand by 6 per cent this year from an earlier forecast of 5.5 per cent as developed economies rebound, according to the International Monetary Fund.

Aramco’s revenue for the first three months of the year rose by 21 per cent to $72.5bn while capital expenditure during the period stood at $8.2bn.

Cash flow from operating activities stood at $26.5bn while free cash flow hit $18.3bn.

The company also benefitted from improved downstream margins and the consolidation of the results of Sabic, the Middle East’s largest petrochemical producer that is majority owned by Aramco.

Sabic last week reported a first-quarter net profit of 4.86bn Saudi riyals ($1.29bn), an improvement from a net loss of 1.05bn riyals reported in the same period a year ago.

Sabic’s revenue increased by 24 per cent to 37.53bn riyals in the first three months of the year amid higher prices for its products.

Aramco’s total hydrocarbon production stood at 11.5 million barrels of oil equivalent a day in the first three months of this year. The average volumes include 8.6 million bpd of crude.

“The results are a good start for overall earnings trend for Middle East energy players,” said Vijay Valecha, chief investment officer at Dubai’s Century Financial.

“The current bullish scenario in energy markets is on back of upside momentum in core benchmarks – WTI and Brent. This has provided increased tailwinds and pricing power to major refineries, thereby benefitting their bottom line.”

Big oil companies such as BP and Exxon Mobil also returned to profit on the back of rising crude prices.

BP’s adjusted first-quarter net income more than tripled to $2.6bn from the same period a year ago, the company said last month.

Exxon Mobil swung to a net profit of $2.73bn in the first quarter after declaring a loss of $610 million in the same period a year ago.

“Should the rally in the benchmarks sustain and even continue towards the upside, refiners and petrochemical players are likely to enjoy the joy ride further,” said Mr Valecha.

However, he said India’s devastating second Covid-19 wave could derail the positive momentum in the energy industry.

Saudi Arabia, which leads the Opec+ alliance with Russia, contributed an outsize voluntary cut of 1 million bpd from February until the end of April.

It will phase out the curbs from May onwards by drawing back 250,000 bpd in May, 350,000 bpd in June and 400,000 bpd in July.

The kingdom is also in talks with foreign companies to sell additional shares in Aramco.

It is evaluating the sale of a 1 per cent stake to a leading global energy company within the next two years, Saudi Crown Prince Mohammed bin Salman said last month.

The sale could be worth about $18.9bn, based on the company’s current market value of 7.11 trillion riyals.

The world’s biggest oil company is also looking at ways to generate revenue from its assets.

It signed a $12.4bn agreement last month for the sale of a 49 per cent stake in a newly formed oil pipeline venture to a consortium led by Washington-based EIG Global Energy Partners.

The deal is Aramco’s largest since its 2019 listing on the Tadawul exchange, when it raised more than $29bn.

The new venture, Aramco Oil Pipelines Company, will lease rights to use the state oil company’s stabilised crude oil pipeline network that connects oilfields to the downstream network for 25 years.