Saudi Arabia hikes oil investments as it profits from price surge

Saudi Arabia’s state oil company Aramco, under pressure from the West to boost output amid soaring prices, pledged on Sunday to hike investments by around 50 per cent this year as it reported a doubling in 2021 profits.

Oil prices leapt 50 per cent last year as demand recovered from the Covid-19 pandemic, and then surged above $100 a barrel to 14 year highs in February after Russia invaded Ukraine, leading Western nations to urge major producers to increase output.

Aramco said it would boost its capital expenditure (capex) to $40-50 billion this year, with further growth expected until around the middle of the decade. Capex was $31.9 billion last year, up 18 per cent from 2020 — indicating an increase of about 50 per cent for this year at the middle of the guidance range.

Asked if Aramco would pump more oil to fill any gaps in the market left by the war in Ukraine, CEO Amin Nasser said it would produce according to guidelines from the Saudi energy ministry.

The company has said it plans to raise its crude oil “maximum sustainable capacity” to 13 million barrels a day by 2027, and wants to increase gas production by more than 50 per cent by 2030. Its average hydrocarbon production was 12.3 million barrels of oil equivalent per day last year.

Aramco made $110 billion in net profit in 2021, up from $49 billion a year earlier and compared with analysts’ mean estimate of $106 billion, according to Refinitiv Eikon.

With a rise in both output and prices, analysts expect net profit to reach $140 billion in 2022.

Aramco’s shares rose over four per cent in early trade to a high of SR43.85, valuing it at SR8.76 trillion ($2.34 trillion).

A $2 trillion valuation was a goal sought by de-facto Saudi leader Crown Prince Mohammed bin Salman before the company’s record $29.4 billion initial public offering in 2019.

He has announced plans to sell more Aramco shares.

The surge in Aramco’s valuation on Sunday moved it above that of Microsoft, though it remains behind Apple’s $2.68 trillion.

The Saudi government said last month that Crown Prince Mohammed, who is leading a huge investment drive to diversify the kingdom’s economy, had transferred four per cent of Aramco shares to the country’s sovereign wealth fund.

Boosting Capex

“They are ramping up the reinvestment quite substantially and they are likely to use (the free cash flow) to de-lever the balance sheet,” said Yousef Husseini, head of the materials team at EFG Hermes Research.

Aramco said its free cash flow was $107.5 billion last year, compared with $49.1 billion in 2020. It declared a dividend of $75 billion for 2021, in line with its earlier pledge.

The company said it also planned to develop a significant hydrogen export capability and become a global leader in carbon capture and storage technology.

Nasser told an earnings call that global oil demand was growing healthily and spare production capacity was declining.

In a separate statement he said “although economic conditions have improved considerably, the outlook remains uncertain due to various macro-economic and geopolitical factors.” — Reuters