Page 4 - MEOG Week 32 2021

MEOG COMMENTARY MEOG
Aramco announces bumper profits, expansion plans
The Saudi firm reported massive profits while providing a little more detail on its plans to increase its production capacity.
SAUDI ARABIA
WHAT:
Aramco continued
its recovery from the challenges of 2020, posting results that were on a par with those achieved before the pandemic.
WHY:
It benefited from a $7 boost in the average realised price of crude, allowing it to outperform in Q1 despite not increasing production.
WHAT NEXT:
The company’s focus has returned to expanding oil production capacity at giant fields having already made some progress at smaller assets.
SAUDI Aramco this week announced its half- year results that were highlighted by a near quad- rupling of Q2 net income compared to the same period last year.
With oil prices having rebounded signifi- cantly since the beginning of the year, concerns about Aramco’s ability to make its quarterly $18.75bn dividend payment were notable by their absence from media coverage of the results.
Meanwhile, with its finances clearly in a healthier state, the company is pressing forward efforts to increase its maximum sustainable capacity (MSC) for oil production by 1mn bar- rels per day (bpd), targeting a 550,000-bpd hike within four years.
Results
Aramco reported net income of $25.2bn for Q2, up $3bn from the first three months of the year and an increase of around $19bn compared to 2Q2020. The first half net income of $47.2bn is more than double the total achieved during the same period last year and higher than the $46.9bn it reported in 1H2019 before the out- break of the coronavirus (Covid-19) pandemic.
Free cash flow also nearly doubled year over year to $40.9bn as both price and demand recov- ered after more than a year of global travel and social restrictions that had seen earnings slashed throughout various sectors.
This saw the average realised price of crude rise from $60.2 per barrel in Q1 to $67.9 per bar- rel in Q2 and the company’s improved fortunes are even more starkly demonstrated when not- ing that during full-year 2020 the price per bar- rel averaged $40.6. If ever the Kingdom wanted a
demonstration of the importance of maintaining unity among the OPEC+ group, this was it. Ara- mco maintained its crude oil production level at 8.6mn bpd through both Q1 and Q2, constrain- ing output under instruction from the Ministry of Energy (MoE) and propping up prices.
The production figure is 3.5mn bpd less than the 12.1mn-bpd record high the com- pany achieved in April 2020 when the impact of COVID-19 ravaged demand while supplies continued unabated.
On the company’s achievement of ‘more for less’, Aramco’s President and CEO Amin Nasser said: “Our second quarter results reflect a strong rebound in worldwide energy demand and we are heading into the second half of 2021 more resilient and more flexible, as the global recov- ery gains momentum. While there is still some uncertainty around the challenges posed by COVID-19 variants, we have shown that we can adapt swiftly and effectively to changing market conditions.”
Meanwhile, he added that following the suc- cess of the $12.4bn deal to lease and lease back a 49% stake in Aramco Oil Pipelines Co. (AOPC) to a consortium led by EIG Global Partners for a duration of 25 years, Nasser said that the com- pany would “continue to move forward” with several strategic initiatives including “maximiz- ing the value” of its assets.
Having borrowed heavily to cover the $69bn acquisition of chemicals specialist Saudi Arabia Basic Industries Co. (SABIC) and to maintain dividend payments, Aramco’s new CFO Ziad al-Murshed sounded buoyant as the company appears set to cover at least the Q2 payment
Current MSC Dammam
Ain Dar and Fazran Berri
Marjan
Zuluf
Expanded MSC* *Excludes declines at mature assets
2021
12 0.175
12.175
2022
12 0.175
12.175
2023
12 0.175
12.175
2024
12 0.025 0.175 0.25
12.45
2025
2026
Saudi Arabian Oil Production Capacity Additions (mn bpd)
12 12 0.025 0.05 0.175 0.175
0.25 0.25 0.3 0.3 0.6 12.75 13.375
Sources: Saudi Aramco, Independent Research
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w w w . N E W S B A S E . c o m Week 32 11•August•2021
Increments