Oil giant Saudi Aramco beats estimates with 30% profit increase in first quarter

Oil tanks at an oil processing facility of Saudi Aramco, a Saudi state-owned oil and gas company, at the Abqaiq oil field.

Stanislav Krasilnikov | TASS via Getty Images

Oil giant Saudi Aramco on Tuesday reported a 30% rise in net profit on Tuesday, a sign of continued recovery from the previous year’s oil market crash that saw the state-owned company’s annual profits cut in half .

In a statement on Tuesday, the company said net profit rose to $ 21.7 billion in the first three months of the year, from $ 16.6 billion in the same period last year.

It topped some analysts’ estimates of $ 17.24 billion, despite lower oil production in February and March. The figure comes close to the company’s level of net income in the first quarter of 2019, which was $ 22.2 billion.

The company said free cash flow in the first quarter of 2021 was $ 18.3 billion, up from $ 15 billion compared to the same period last year.

Saudi Arabia’s oil giant also maintained its dividend, with $ 18.8 billion due in the first and second quarters.

Oil prices rebound

Profits reflect a significantly improved climate for the oil markets since the first quarter of last year, when Aramco reported a 25% drop in net profit as it grappled with the early fallout from the coronavirus pandemic and global demand is growing.

Aramco, like its global peers, has gone through an uncertain oil price environment and an unpredictable global economic recovery. The company has described 2020 as the “most difficult year” in its history and is now benefiting from the recovery in oil markets, with international benchmark Brent prices roughly double what they were at the same time. last year. The refining and chemical margins are also starting to improve.

“The momentum provided by the global economic recovery has strengthened energy markets,” Aramco President and CEO Amin Nasser said in a company press release on Tuesday. He added that “some headwinds remain”, but said: “Given the positive signs of energy demand in 2021, there is more reason to be optimistic that better days are approaching.”

How she plans to overcome lingering uncertainty using her balance sheet is a key focus for Aramco’s future. The company has reported significant asset sales in recent months, most recently an announcement by Kingdom Crown Prince Mohammed bin Salman in late April to sell 1% of Aramco to a “leading global energy company”.

Aramco has also been in talks to raise cash from other asset sales, including the $ 12.4 billion sale of its pipeline unit that could potentially free up cash to repay debt. In mid-April, the company signed an agreement to sell a 49% stake in its pipelines to EIG Global Energy Partners, a US-led consortium.

“Our portfolio optimization program continues to identify value creation opportunities, such as the recent announcement of our landmark $ 12.4 billion pipeline infrastructure deal,” said Nasser. “We also expect the Shareek program, recently launched by Saudi Arabia, to present opportunities for growth, through incentives that encourage partnerships and investments.”

The new Shareek initiative, which means ‘partner’ in Arabic, will allow state-backed oil giant and Saudi petrochemical company SABIC, among other large domestic companies, to lead investments in the Saudi private sector from a significant perspective. worth 5 trillion riyals ($ 1.3 trillion) in 2030, reducing dividends paid to the government. The objective of the initiative is to help the kingdom dependent on hydrocarbons to diversify its economy.

Further details on how the program works have yet to be announced.

Saudi Aramco was the world’s largest IPO when it went public in December 2019 and listed around 1.5% of its shares on the local exchange, Tadawul.

—CNBC’s Abigail Ng contributed to this report.

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