Aramco's Q1 net profit surges 30% on higher oil prices

Net profit reaches $21.7bn as developed economies recover from Covid-19 and energy demand picks up

Saudi Aramco is the world's biggest oil company. EPA

Saudi Aramco, the world's largest oil-exporting company, said first-quarter net profit surged 30 per cent to $21.7 billion from the year-earlier period, underpinned by higher oil prices and an improved economic environment.

The company beat the average $19.48bn net profit estimate of five analysts polled by Reuters and the $18bn forecast of those surveyed by Bloomberg. Aramco plans to pay a dividend of $18.8bn in the second quarter.

“The momentum provided by the global economic recovery has strengthened energy markets, and Aramco’s operational flexibility, financial agility and the resilience of our employees have contributed to a strong first-quarter performance," said Aramco president and chief executive Amin Nasser.

Both the Brent and West Texas Intermediate (WTI) oil benchmarks have gained more than 30 per cent year to date, supported by vaccination drives in developed economies, stimulus packages and relaxed restrictions in several countries.

The global economy is set to expand by 6 per cent this year from an earlier 5.5 per cent forecast as developed economies rebound, according to the International Monetary Fund.

Aramco's revenue for the first three months of the year rose by 21 per cent to $72.5bn while capital expenditure during the period stood at $8.2bn.

Cash flow from operating activities reached $26.5bn while free cash flow hit $18.3bn.

The company also benefitted from improved downstream margins and the consolidation of the results of Sabic, the Middle East's largest petrochemical producer that is majority owned by Aramco.

Last week, Sabic swung to a 4.86bn Saudi riyals ($1.29bn) net profit in the first quarter, from a net loss of 1.05bn riyals during the same period a year ago, due to higher prices for its products.

Sabic's revenue increased by 24 per cent to 37.53bn riyals in the first three months of the year amid higher prices for its products.

Aramco's total hydrocarbon production reached 11.5 million barrels of oil equivalent a day in the first three months of 2021. The average volumes include 8.6 million bpd of crude.

"The results are a good start for overall earnings trend for Middle Eastern energy players," said Vijay Valecha, chief investment officer at Dubai-based Century Financial.

"The current bullish scenario in energy markets is on back of upside momentum in core benchmarks – WTI and Brent. This has provided increased tailwinds & pricing power to major refineries thereby benefiting their bottom line," he added.

Global oil majors such as BP and Exxon Mobil also returned to profitability on the back of rising crude prices.

BP’s adjusted first quarter net profit more than tripled to $2.6bn from the same period a year earlier, the company said last month.

Exxon Mobil swung to a $2.73 billion net profit in the first quarter compared with a loss of $610 million in the same period a year earlier.

"Should the rally in the benchmarks sustain and even continue towards the upside, refiners and petrochemical players are likely to enjoy the joy ride further," said Mr Valecha.

But he also warned that the devastating second wave of Covid-19 across the Indian subcontinent could derail the positive momentum sustained in the energy industry.

The kingdom, which leads the Opec+ alliance of producers alongside Russia, contributed an outsize voluntary cut of 1 million bpd from February until the end of April.

Riyadh will phase out the curbs from May onwards by drawing back 250,000 bpd in May, 350,000 bpd in June and 400,000 bpd in July.

Saudi Arabia is also in talks with foreign companies to sell additional shares in Aramco. The kingdom is considering selling a 1 per cent stake to a leading global energy company and may happen within the next one or two years, Saudi Crown Prince Mohammed bin Salman said last month.

The stake sale could be worth about $18.9bn, based on the company's current market capitalisation of 7.11 trillion riyals ($1.89tn).

The world's biggest oil company is also looking at ways to generate revenue from its assets.

In April, Aramco signed a $12.4bn deal for the sale of a 49 per cent stake in a newly formed oil pipeline venture to a consortium led by Washington-based EIG Global Energy Partners.

The agreement is Aramco's largest since its 2019 listing on the Tadawul exchange, when it raised more than $29bn.

The new venture, Aramco Oil Pipelines Company, will lease usage rights in the state oil company's stabilised crude oil pipeline network, which connects oilfields to the downstream network, for 25 years.