Oil tanks at an oil processing plant owned by Saudi Aramco, a Saudi Arabian state oil and gas company, in the Abqaiq oil field.
Stanislav Krasilnikov | TASS via Getty Images
Oil giant Saudi Aramco reported a 30% increase in net profits on Tuesday. This is a sign of a sustained recovery after last year’s oil market crash that cut annual profits for the state-owned company in half.
In a press release released Tuesday, the company said net income rose to $ 21.7 billion for the first three months of the year, from $ 16.6 billion for the same period last year.
Despite lower oil production in February and March, it beat some analysts’ estimates of $ 17.24 billion. The number is approaching the company’s net income for the first quarter of 2019, which was $ 22.2 billion.
The company said free cash flow was $ 18.3 billion for the first quarter of 2021, up from $ 15 billion in the same period last year.
Saudi Arabia’s gigantic oil producer also kept its dividend. $ 18.8 billion should be paid out in both the first and second quarters.
Oil prices are recovering
The gains reflect a dramatically improved climate for oil markets since the first quarter of last year, when Aramco saw net income fall 25% as it struggled with the initial fallout from the coronavirus pandemic and crater-like global demand.
Aramco, like its global counterparts, has weathered an uncertain oil price environment and an unpredictable recovery in the global economy. The company called 2020 “the most challenging year” in its history and is now benefiting from the recovery in the oil markets. The international reference prices for Brent crude oil are roughly twice as high as last year. Refining and chemical margins are also starting to improve.
“The momentum of the global economic recovery has strengthened the energy markets,” said Amin Nasser, President and CEO of Aramco, in a company press release on Tuesday. He added that “there are still some headwinds,” but said, “Given the positive signs of energy demand in 2021, there are more reasons to be optimistic that better days are coming.”
A key focus for Aramco’s future is how to use the balance sheet to address the ongoing uncertainty. The company has seen significant asset sales in recent months, most recently an announcement by Crown Prince Mohammed bin Salman of the Kingdom in late April to sell 1% of Aramco to a “leading global energy company”.
Aramco was in talks to raise cash from other asset sales as well, including the sale of its $ 12.4 billion pipeline unit that could potentially free up cash to pay off debt. In mid-April, the company signed an agreement to sell a 49% stake in its pipelines to EIG Global Energy Partners, a US-led consortium.
“Our portfolio optimization program continues to identify value opportunities, such as the recent announcement of our landmark $ 12.4 billion pipeline infrastructure agreement,” said Nasser. “We also expect the newly launched Shareek program in Saudi Arabia to provide growth opportunities through incentives that encourage partnerships and investment.”
The new Shareek initiative, which means “partner” in Arabic, will enable state-backed oil giant and Saudi petrochemical company SABIC, along with other large domestic companies, to invest Riyals 5 trillion (US $ 1.3 trillion) in the Saudi private sector. Dollars) to be made in 2030 by reducing dividends paid to the government. The aim of the initiative is to help the hydrocarbon-dependent kingdom diversify its economy.
Further details on how the program will work have not yet been released.
Saudi Aramco was the world’s largest public offering when it went public in December 2019, listing around 1.5% of its shares on the local Tadawul Stock Exchange.
– Abigail Ng of CNBC contributed to this report.