Saudi Aramco profit slides to $30 billion on lower oil prices

Saudi Aramco, the world's largest oil-producing company, said second-quarter net profit softened due to voluntary production cuts and lower crude prices, although the results were in line with analyst expectations.

Net profit after zakat for the three-month period to the end of June fell 38 per cent to about $30.1 billion, from its record $48.4 billion in the year-earlier period, the national oil company of Saudi Arabia said on Monday, in a regulatory filing to the Tadawul stock exchange, where its shares are traded.

Net income for the second quarter of this year fell about 6 per cent from the first quarter of 2023.

Aramco plans to pay $29.4 billion in dividends in the third quarter, which include performance-linked dividends. It plans to distribute performance-linked dividend payments over six quarters from the third quarter of 2023.

Net income for the first half of the year fell nearly 30 per cent to $61.96 billion from the same period of 2022, due to lower crude oil prices and weakening refining and chemicals margins.

“Our strong results reflect our resilience and ability to adapt through market cycles. We continue to demonstrate our long-standing ability to meet the needs of customers around the world with high levels of reliability. For our shareholders, we intend to start distributing our first performance-linked dividend in the third quarter,” said Aramco president and chief executive Amin Nasser.

“Our mid to long-term view remains unchanged. With a recovery anticipated in the broader global economy, along with increased activity in the aviation sector, ongoing investments in energy projects will be necessary to safeguard energy security."

The company's share price was up 10 per cent year to date before the latest results announcement. The stock jumped more than 2 per cent following the release of the earnings on Monday.

Aramco is third most valuable company in the world, with a market value of $2.08 trillion, behind Microsoft ($2.44 trillion) and Apple ($2.86 trillion) as of August 6. It is the second largest company by revenue behind Walmart, which has held the top position since 2014.

Oil prices have gained six consecutive weeks as Saudi Arabia and Russia have extended their supply reductions into September, while the Opec+ 23 member alliance of producers has said it is ready to take further actions if market conditions warrant it.

Brent, the benchmark for two thirds of the world’s oil, surged 14 per cent in July, the most since January 2022, on the back of supply cuts, rising global demand and a tighter market.

Last month, Opec raised its oil demand growth forecast for this year based on higher fuel consumption in China, the world’s second-largest economy and top crude importer.

The oil producers bloc expects global oil demand to grow by 2.4 million barrels per day in 2023, up from a previous estimate of 2.3 million bpd, according to its latest monthly oil market report. The group, which released its 2024 forecast for the first time, said it expects global crude demand next year to grow by a “healthy” 2.2 million bpd to an average 104.25 million bpd.

Still, while the global economy has continued to recover from the effects of the Covid-19 pandemic, the growth momentum is sluggish.

Goldman Sachs expects Brent to average $86 a barrel by December and estimates prices will rise to $93 in the second quarter of 2024, while UBS expects the benchmark to trade in the range of $85 to $90 a barrel over the coming months.

Oil prices are projected to fall by about 21 per cent in 2023, with the assumed average price per barrel, based on futures markets, at $76.43 in 2023 and $71.68 in 2024, compared with $96.36 in 2022, according to the International Monetary Fund.

Last month, the IMF marginally raised its growth estimate for the global economy this year to 3 per cent, weaker than the historical growth average of 3.8 per cent over the 2000-2019 period.

Aramco's revenue for the second quarter of the year fell 28 per cent to $107 billion from the same quarter a year earlier. Revenue fell about 4 per cent from the first three months of 2023.

Cash flow from operating activities came in at $33.6 billion in the second quarter and $73.3 billion in the first half of the year.

Free cash flow was $23.2 billion in the second quarter compared with $34.6 billion in the same period a year earlier and $54.1 billion during the first half of 2023 compared with $65.2 billion in 2022.

The company's gearing ratio was down 10.5 per cent at the end of June compared with 7.9 per cent at the end of 2022.

Return on average capital employed during the second quarter was 25.9 per cent, compared to 31.3 per cent for the same period in 2022.

Capital expenditure increased 12 per cent to $10.46 billion in the second quarter from the same period a year earlier.

“We are maintaining the largest capital spending programme in our history, with the aim of increasing our oil and gas production capacity and expanding our downstream business — with petrochemicals projects, such as our $11 billion expansion of the SATORP refinery with TotalEnergies, essential to meet future demand,” Mr Nasser said.

The company continues to work on increasing its maximum crude oil capacity to 13 million barrels of oil per day by 2027 from 12 million barrels of oil per day.

"We remain optimistic about the potential for new technologies to reduce our operational emissions, and our recent blue ammonia shipments to Asia highlight the growing market interest in the potential of alternative, lower-carbon energy solutions,” Mr Nasser said.