Aramco almost doubles 1Q profit on higher oil prices

State-controlled Saudi Aramco's profit for the first quarter of the year almost doubled compared with a year earlier to $39.5bn, buoyed by the sharp hike in oil prices since Russia invaded Ukraine in late February.

The 82pc year-on-year jump in profit represents the company's strongest quarterly earnings since it sold 1.5pc of its shares in a partial listing on Saudi Arabia's domestic Tadawul stock exchange in late 2019, Aramco said Sunday. Besides higher oil prices, the firm attributed the growth in profit to "higher volumes sold, as well as much improved downstream margins".

Aramco said it produced 13mn b/d of oil equivalent (boe/d) in the first quarter, but it did not disclose how much of that was crude. Argus estimates that the company produced 10.14mn b/d of crude in the first three months of the year, 7pc higher than the 9.2mn b/d it said it produced over the whole of last year. The rise is in line with the roadmap set out by Opec and its non-Opec partners to unwind their collective production cut by the end of this year.

Aramco generated $30.6bn of free cash flow in January-March, up by 67pc up on the $18.3bn it delivered in the corresponding quarter last year and well in excess of its $18.8bn quarterly dividend payment. The surplus cash helped the state energy giant strengthen its balance sheet during the quarter, with its gearing ratio falling to 8pc at the end of March, down from 14pc at the end of the previous quarter and 23pc at the end of the first quarter of 2021.

The growth in free cash flow was underpinned by higher operating cash flow and proceeds from the sale of a 49pc stake in the firm's recently formed Aramco Gas Pipelines subsidiary to an international consortium in February. The $15.5bn deal involves the new subsidiary leasing usage rights in Aramco's gas pipeline network and leasing them back to Aramco for a period of 20 years.

Aramco's free cash flow also benefited from a 7pc year-on-year drop in capital expenditure (capex) to $7.6bn in the first quarter, although the pace of investment is likely to accelerate significantly over the rest of the year given that the firm's full-year capex guidance is $40bn-50bn. The company reiterated today that it expects capex to grow year-on-year through to the middle of the decade.

"Energy security is vital, and we are investing for the long-term, expanding our oil and gas production capacity to meet anticipated demand growth, and creating long-term shareholder value by capitalizing on our low lifting cost, low upstream carbon intensity and integrated downstream business," chief executive Amin Nasser said.

Step on the gas

Aramco is working to raise its sustainable crude production capacity to 13mn b/d by 2027, from around 12mn b/d today — excluding Saudi Arabia's share of production from the Neutral Zone, which it shares 50:50 with Kuwait. The company also aims to boost its gas output by "more than 50pc" by 2030, which would see production rising to above 20bn ft³/d from 10.14bn ft³/d in 2021. Aramco said it remains on course to deliver the Hawiyah and Haradh compression projects by the end of this year, which will together add 1.3bn ft³/d to its gas output. The Hawiyah gas plant is forecast to come on stream in 2023, it said.

In the downstream, Aramco pressed ahead with its international expansion plans during the first quarter with an agreement to buy a 30pc stake in Poland's 210,000 b/d Gdansk refinery and a final investment decision to enter a joint venture that will develop a greenfield refining and petrochemical complex in the Chinese city of Panjin. The company announced in March a target to expand its liquids-to-chemicals capacity to 4mn b/d by 2030, from just over 1mn b/d today.

Aramco will release full details of its results on Monday.

By Nader Itayim