Aramco profit hits another record in bumper oil market

Saudi Aramco posted the largest adjusted quarterly profit of any globally listed company on the back of high crude prices and output.

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(Bloomberg) — Saudi Aramco posted the largest adjusted quarterly profit of any global public company on the back of high crude prices and output.

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Aramco followed the big oil rivals and reported a rise in profits. Net income rose to $48.4 billion in the second quarter from $25.5 billion a year earlier, the state-controlled company said on Sunday. Its free cash flow increased 53% from a year earlier to $34.6 billion.

The company is using the extraordinary profit to reduce debt and invest in a large expansion of its production capacity. Aramco is betting that demand for its oil and chemicals will remain high, even as the world looks to move away from fossil fuels.

Aramco “expects oil demand to continue to grow for the rest of the decade, despite downward economic pressures on near-term global forecasts,” CEO Amin Nasser said.

Energy companies boomed in the first half of this year. The Russian invasion of Ukraine has roiled markets, pushing oil prices above $100 a barrel and causing refining margins to soar, while Aramco is benefiting from both high output and selling prices. Companies like Exxon Mobil Corp. and Shell Plc posted record profits in the second quarter.

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That’s despite growing anguish over the consequences of climate change, which has triggered a wave of droughts, wildfires and floods across the Northern Hemisphere this summer.

Despite concerns about climate change, rising oil prices have prompted many Western leaders to call on Saudi Arabia to pump more oil to help fight global inflation. US President Joe Biden traveled to Jeddah last month to request an increase in oil production. However, the Saudi-led group has taken only modest steps since then. At its last meeting, OPEC plus agreed to a production increase of 100,000 per day, as it was concerned about its shrinking available capacity.

World oil demand remains “healthy,” Nasser said. If demand for jet fuel reaches pre-pandemic levels, “that will put a lot of stress on the market,” he said.

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Aramco is looking to work with partners to invest in carbon capture, renewable energy and hydrogen production, as part of its goal of reaching net-zero carbon emissions from operations by 2050, Nasser said on a call with reporters. That is even as it seeks to increase its maximum oil production capacity to 13 million barrels per day, and gas production by as much as 50%.

Saudi Aramco does not plan to reduce absolute emissions until 2035

The Saudi state-controlled company kept its quarterly dividend, a crucial source of income for the kingdom, unchanged at $18.8 billion. Unlike most big Western companies, that increased payouts to shareholders.

Aramco also lowered leverage, a measure of debt-to-equity, to 7.9% from 14.2% at the end of 2021. Revenue rose 80% to $150 billion and free cash flow, which had fallen below the level needed to fund its dividend payments in 2020, increased 53% from the previous year to $34.6 billion. Earnings topped an analyst estimate compiled by the company of $46.2 billion.

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The quarter may mark a high point for Aramco. While Brent crude averaged $112 a barrel between April and June, it has since fallen below $95 as the US and European economies slow and China imposes Covid lockdowns.

Still, Saudi Arabia is ramping up production along with other members of OPEC+, the producer cartel it leads alongside Russia. The kingdom pumped 10.5 million barrels a day of crude in the second quarter. It increased that figure to nearly 11 million in July and is under pressure from the US and other major importers to raise it further, even though some analysts doubt it has much spare capacity.

Aramco would have no problem producing 12 million barrels a day if asked by the Saudi government, Nasser said. The company is also working to increase maximum sustainable crude oil capacity from 12 million barrels per day to 13 million by 2027.

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It could also have another million barrels a day available for export by 2030, as the country seeks to replace power plants that burn crude oil with gas and renewable energy.

Aramco listed in Riyadh in 2019, although it is still 94% state-owned. Its shares have gained 25% this year, giving it a market valuation of $2.4 trillion.

It could sell shares in some of its units on the Saudi stock exchange, Nasser said, as part of a “portfolio optimization” plan that has already seen it sell stakes in subsidiaries that lease its oil and gas pipelines.

Aramco is considering a plan to list its business unit, people familiar with Bloomberg said in May.

The company is expected to publish a more detailed breakdown of its results, including the performance of its upstream and downstream units, on Monday.

Click here for more details of the results.

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