State-controlled Saudi Aramco's second-quarter profit nearly quadrupled on the year on the back of higher oil prices.
The company reported a profit of $25.5bn in April-June, up from $6.6bn a year earlier. Aramco's free cash flow grew at a similar pace, hitting $22.6bn in the second quarter, compared with $6.2bn during the same period last year. This was more than enough to cover the firm's quarterly dividend of $18.8bn. It is sticking to its commitment to pay an annual dividend of $75bn, most of which goes to the Saudi government.
Aramco said its massive increase in profits was "driven by higher oil prices and a recovery in worldwide demand, supported by the global easing of Covid-19 restrictions, vaccination campaigns, stimulus measures and accelerating activity in key markets". The comany said it also benefited from improved downstream margins and the consolidation of chemical firm Sabic's result.
"Our second-quarter results reflect a strong rebound in worldwide energy demand and we are heading into the second half of 2021 more resilient and more flexible, as the global recovery gains momentum," said Aramco chief executive Amin Nasser.
Global oil demand stands at around 97mn b/d — still below pre-pandemic levels — and is expected to increase to 99mn b/d by the end of the year and rise to an average of 103mn b/d in 2022, according to Nasser. "With the strong economic recovery and demand rebound that we see, especially from the US and China, we expect total demand next year to be at 103mn b/d," he said.
Investment opportunities
Aramco's second-quarter capital expenditure (capex) came to $7.5bn, which was $1.3bn higher than the same period last year. Capex in the first six months of this year was $15.7bn, some 15pc higher than a year earlier. Full-year guidance remains $35bn.
There is a "lot of underinvestment" in global oil supply, Nasser said, adding "it is a great opportunity for us to increase our low-cost, low-carbon intensity supply to the world".
Aramco's plans to boost its crude capacity by 1mn b/d to 13mn b/d, mainly from the offshore Zuluf, Berri and Marjan fields, are still in the advanced engineering stages. Nasser did not provide a timeline for when this capacity boost would be completed.
Aramco's second-quarter gearing ratio improved to 19.4pc at the end of June, compared with 23pc at the end of last year. The company is targeting 5-15pc gearing across cycles, Nasser said.
Aramco's balance sheet has been strengthened by a 25-year, $12.4bn lease-and-lease back crude pipeline deal with a consortium led by US-based EIG Global Energy Partners. The firm recently boosted liquidity through issuing a $6bn US-dollar denominated Islamic Sukuk bond. Nasser confirmed that Aramco is working on similar deals to the pipeline lease agreement to unlock capital but he gave no further details.
