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State-controlled Saudi Aramco today reported a 38pc decline in second-quarter profit compared with the same period last year, driven by a combination of lower oil prices, a fall in crude output and weaker refining and chemical margins.
The Saudi energy giant said it made a profit of $30.08bn (112.8bn Saudi riyals) in April-June, versus $48.44bn a year earlier. This took profit for the first half of the year to $61.96bn, which was down by almost 30pc on the same period last year.
"The second quarter of 2023 was characterised by continued global economic uncertainty and market volatility," Aramco chief executive Amin Nasser said. "This obviously affected energy prices. Yet, Aramco delivered strong earnings thanks to our low-cost production, supply reliability and continued strong demand for our products."
Aramco sold its crude for an average $78.80/bl in the second quarter, down from $113.20/bl in April-June last year. The company said its total oil and gas production stood at 13.5mn b/d of oil equivalent (boe/d) in the second quarter, down slightly from 13.6mn boe/d over the same period in 2022.
Aramco did not give a breakdown of its hydrocarbons output, but gas is likely to have made up a larger share of the total this year given Opec+ constraints on Saudi crude production. Saudi crude output averaged 10.15mn b/d in April-June, according to Argus estimates, down from 10.46mn b/d in the corresponding period in 2022. These figures include Saudi Arabia's allocation of production from the Neutral Zone it shares with Kuwait ꟷ 110,000 b/d on average over the past 12 months ꟷ which Aramco does not operate.
The company's free cash flow dropped to $23.16bn in the second quarter from $34.61bn a year earlier, but this was more than enough to cover the $19.5bn it paid out in dividends during the quarter. Aramco reiterated plans to introduce a new performance-linked dividend, in addition to its base dividend, which will be distributed over six quarters starting from this quarter. The first special dividend payout of $9.87bn, calculated based on the full-year results of 2022 and the half-year results of 2023, has been approved by the board, the firm said.
Keep on spending
Aramco's capital expenditure (capex) rose to $10.46bn in the second quarter, up from $9.36bn in the same period last year, as the company pressed ahead with its plan to boost sustainable crude production capacity by 1mn b/d to 13mn b/d by 2027. The firm is also working to lift its gas output by more than 50pc to above 15bn ft³/d (155bn m³/yr) from 10.14bn ft³/d in 2021.
Capex came in at $19.21bn for the first six months of the 2023, which is less than half the firm's spending guidance for the full year. Aramco's chief financial officer Ziad al-Murshed said the company is still very much "on track" to meet its $45bn-55bn capex guidance for 2023, suggesting that spending will rise markedly in the second half of the year.
"We are still in the middle of the year. And we still feel comfortable with this $45bn-55bn," al-Murshed said, reaffirming Aramco's intention to carry on boosting capex year on year until the middle of the decade.
Looking further ahead, Nasser reiterated his call for additional investment in the upstream oil and gas sector, warning that without it the world could soon struggle to meet demand for energy.
"While the market is currently well supplied, it still requires sustainable investment in upstream oil and gas, not only to support the current market recovery, but also the potential future demand growth," Nasser said. "Considering the balances over the mid to long term, it will be difficult to meet that demand if it continues to grow [as it is today]."
