Saudi Arabia’s state oil giant, Aramco, announced on Sunday to increase spending by approximately 50% this year as it reported a tripling in 2021 profits, despite demands from the West to increase output amid high prices.
Oil prices rose 50% last year as demand rebounded from the COVID pandemic, then soared to 14-year highs in February after Russia invaded Ukraine, prompting Western nations to push major suppliers to boost output.
Aramco announced that it would increase its capital spending to $40-50 billion this year, with more growth likely through the middle of the decade. Last year’s CAPEX was $31.9 billion, up 18 percent from 2020, implying a 50 percent increase this year in the center of the projection range.
When asked if Aramco will pump additional oil to fill any shortages in the market caused by the Ukraine conflict, CEO Amin Nasser said the company would follow Saudi energy ministry instructions.
The business has stated that its crude oil “maximum sustainable capacity” will be raised to 13 million barrels per day by 2027 and that it expects to expand gas production by more than 50% by 2030. Last year, it produced an average of 12.3 million barrels of oil equivalent per day.
According to Refinitiv Eikon, Aramco made a net profit of $110 billion in 2021, up from $49 billion the previous year and exceeding analysts’ average estimate of $106 billion.
Analysts estimate net profit to reach $140 billion in 2022 as output and prices rise.
Aramco’s stock jumped more than 4% in early trading to a high of 43.85 riyals, valuing the company at $8.76 trillion riyals ($2.34 trillion).
Before the company’s record $29.4 billion initial public offering in 2019, de-facto Saudi leader Crown Prince Mohammed bin Salman wanted a $2 trillion valuation.
He has stated that he intends to sell more Aramco stock.
On Sunday, Aramco’s market capitalization surpassed Microsoft’s, albeit it still trails Apple’s $2.68 trillion.
Crown Prince Mohammed, who is leading a massive investment drive to diversify the kingdom’s economy, transferred 4% of Aramco shares to the country’s sovereign wealth fund last month, according to the Saudi government.
CAPEX IMPROVEMENT
“They are significantly increasing investment, and they are likely to use (free cash flow) to de-lever the balance sheet,” said Yousef Husseini, director of EFG Hermes Research’s materials team.
Aramco’s free cash flow was $107.5 billion last year, compared to $49.1 billion in 2020, according to the company. It declared a $75 billion dividend for 2021, which it had previously promised.
The company also stated that it intended to build a significant hydrogen export capability and become a global leader in carbon capture and storage technology.
During an earnings call, Nasser stated that global oil demand was healthy and that spare production capacity was shrinking.
“While economic conditions have improved significantly,” he said in a second statement, “the prognosis remains unpredictable due to several macroeconomic and geopolitical variables.”
