Saudi Aramco Posts Nearly 300% Second Quarter Profit Boost Thanks To Rebound In Global Demand

Saudi oil giant Aramco announced an astonishing 288% increase in net income to $ 25.5 billion for the second quarter, while maintaining its dividend of $ 18.8 billion as big oil companies enjoy higher prices. high levels and a recovery in global demand.

Aramco’s net income of $ 25.5 billion for the quarter compares to $ 6.6 billion in the same quarter of 2020. The result has beaten expectations, with analysts expecting a median net income of 24 , $ 7 billion for the quarter.

“Our second quarter results reflect a strong rebound in global energy demand and we are heading into the second half of 2021 more resilient and flexible, as the global recovery gathers pace,” said the president and chief executive officer of Aramco’s management, Amin Nasser, in a statement released on Sunday. .

Aramco said net profit for the first half of the year was $ 47.2 billion, up from $ 23.2 billion in the first half of 2020, an increase of 103%. The company said the results were supported by the global easing of Covid-19 restrictions, vaccination campaigns, stimulus measures and acceleration of activity in key markets.

“While there is still some uncertainty regarding the challenges posed by the Covid-19 variants, we have shown that we can adapt quickly and effectively to changing market conditions,” Nasser said.

Aramco said free cash flow was $ 22.6 billion in the second quarter and $ 40.9 billion in the first half of 2021, compared to $ 6.1 billion and $ 21.1 billion, respectively. , for the same periods in 2020.

This is important because free cash flow has now exceeded the quarterly dividend of $ 18.75 billion for the first time since the start of the pandemic. Aramco is already paying the world’s biggest dividend, but the improving outlook has prompted some analysts to demand higher payouts.

“An increase in dividends is necessary to remain competitive,” BofA analysts said in a research note ahead of the results release. “The rise in oil prices and the production increases induced by OPEC + are expected to support a significant increase in free cash flow over the next two years,” he added.

Aramco responded by saying its dividend remained at “normal level” for the quarter, but that it “would indicate later” if it would stick to the current payment plan.

“We are reviewing our sustainability agenda,” Nasser told CNBC during Sunday’s earnings call. “A lot of the elements of our investment program that we are currently considering relate to the transformation of crude into chemicals and hydrogen, and all of these programs represent great opportunities, especially with the Shareek program,” he said. added.

Aramco, majority owned by the Saudi government, is a key source of revenue for the kingdom. “All of this will be discussed with our board of directors, and we will decide at a later date on any further distribution of dividends,” said Nasser.

Oil prices have jumped about 40% in 2021 to around $ 70 a barrel, prompting big oil rivals BP, Chevron and Royal Dutch Shell to raise dividends and launch share buyback programs.

“Our expectation is that the recovery will continue,” Nasser said. “We are seeing more openings of economies, and we expect that by the end of the year the demand will be around 99 million barrels … and 100 million barrels next year as demand forecast. total, “he added.

Aramco also said it reduced its debt to equity ratio – essentially the ratio of the company’s debt financing to equity financing – to 19.4% on June 30, from 23% as of December 31, 2020. The decrease is primarily due to higher cash and cash equivalents and higher operating cash flows, as well as proceeds from the recent Aramco pipeline transaction.

“Our landmark $ 12.4 billion pipeline deal was an endorsement of our long-term business strategy by international investors, representing significant progress in our portfolio optimization program,” said Nasser.

Capital spending was $ 7.5 billion in the second quarter and $ 15.7 billion in the first half of 2021, an increase of 20% and 15%, respectively. Aramco said 2021 capital spending is expected to be around $ 35 billion.

Saudi Arabia’s Crown Prince Mohammed bin Salman has said the kingdom will sell more Aramco shares earlier this year, but the company has not commented on the plans. Aramco also refrained from commenting on a previously reported oil-chemical deal with Indian conglomerate Reliance Industries, which is expected to be formalized later this year.

“We continue to move forward on a number of strategic programs, which focus on sustainability and low carbon fuels, maximizing the value of our assets and advancing our journey of downstream integration and expansion.” , added Nasser.

“For all these reasons and many more, I remain extremely positive about the second half of 2021 and beyond.”