Aramco hits Bulls Eye, enough cash flow to pay dividends

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The current energy crisis and the surge in the global market increase in oil prices filled the coffers of the world’s largest oil producer Saudi Aramco. The Saudi national oil company posted a net profit of 158% in the third quarter of 2021, reaching a level of $ 30.4 billion. At the same time, the oil giant’s free cash flow increased 131% at the same time, leaving enough to pay its quarterly dividends.

Aramco’s results are in line with reports published by its compatriots, such as Royal Dutch Shell and others. Analysts expecting median net income of around $ 29.1 billion, the company has beaten expectations, especially considering net income of $ 11.8 billion in the third quarter of 2020. The Saudi Aramco President and CEO Amin Nasser said “some headwinds still exist for the global economy. , in part due to supply chain bottlenecks, but we are optimistic that energy demand will remain healthy for the foreseeable future ”.

On both sides of its operations, Aramco has shown impressive results, crude oil price in combination with higher volumes sold, combined with better margins in refining and chemicals have significantly increased overall revenue.

Saudi oil kings have been sailing the global oil markets in recent times with the wind in their sails. The high price points of WTI / Brent, currently at levels not seen since 2014, have been substantial supporters. At the same time, another unexpected boost came from the energy supply crisis in the natural gas markets, which not only benefited from this side, but also pushed to natural gas – crude oil substation in several regional markets.

The Saudi giant also said it would pay a dividend of around $ 18.8 billion in the fourth quarter of 2021, which is a significant financial injection not only for its private shareholders but also for the Saudi government. The company said the dividend can be paid by an increase in free cash flow to $ 28.7 billion in the third quarter, which is an increase of $ 16.3 billion from the same period in 2020. Financial analysts will also be looking at the company’s overall gearing, aka Aramco’s debt position. Due to higher oil prices and greater cash flow, the debt ratio fell from 23% to 17.2%.

Oil market analysts will again be more than happy, as the global oil giant said it had capital spending of around $ 7.6 billion in the third quarter of 2021, an increase of around 19% from report to the third quarter of 2020. These figures are very important, not only in light of the upstream and downstream investments, but also in light of the significant increase in production capacity announced by Aramco. For 2021, the company expects total capital spending to be around $ 35 billion.

In the weeks to come, Aramco and other national oil companies (ADNOC, Gazprom etc.), but also independents like Shell or Total, will be in the spotlight of COP26 activists and Western governments. Even though the world will not be able to cope with a fossil-free economy for decades, the pressure is now mounting on businesses especially in the West.

Aramco and ADNOC, however, have been very active in seeking a rational response to the media and political assaults. Climate initiatives have been announced, because Aramco and ADNOC are committed to a Net Zero 2050 path. The two giants are however very clear on the decades to come. The energy transition is sustained but more investments are needed in hydrocarbons. Al Rumayyan told reporters that “we need a transition that recognizes that petrochemicals are essential parts of modern life – including the smartphones we all use and the products we rely on for. fight against COVID ”.

The main critical elements of Aramco’s current Net Zero 2050 engine have yet to materialize, as Aramco will not only face multibillion-dollar investments to reduce emissions in the Kingdom, but at the same time adapt to the company’s desire to increase oil production to 13 million bpd. by 2037. Due to the OPEC + export agreement still in force, Saudi Arabia currently produces only about 9.6 million b / d, or 1.1 million b / d more than ‘in the second quarter of 2021.

However, potential risks are still present for Aramco and its sister company SABIC. The latter also reported on its less optimistic financial results. SABIC, also known as Saudi Basic Industries Corporation, owned by Aramco, saw its profits plummet as rising raw material costs squeezed margins.

The world’s largest chemical company reported net income of $ 1.5 billion for the third quarter of 2021, 5 times more than in 2020, but 27% less than in the second quarter of 2021. Even though prices of Chemicals have generally recovered, but logistics, in part due to COVID, but also other issues, have been detrimental. The latter caused a significant drop in margins.

Officials have even indicated that margins could fall further in the coming months. With revenues reaching $ 11.7 billion in the third quarter, up 3% from the previous three months, the company achieved free cash of $ 2.2 billion, an increase of 57%. SABIC’s net zero plans are expected to cost around $ 3-4 billion in the coming years.

A first indicator of what to expect from Aramco and SABIC in the coming months will be given on November 4, when OPEC meets to discuss its oil production and export strategies. Looking at Aramco’s current finances, Saudi Energy Minister Prince Abdulaziz bin Salman is expected not to push to increase the oil group’s export volumes. Profits and margins are too good not to take advantage of them. Calls from COP26 and G20 to OPEC + producers will be heeded, but the storm has yet to deflect the tankers.

This item was originally posted on FX Empire

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