UPBEAT EARNINGS REPORT LIFTS ARAMCO’S OUTLOOK

The latest results of Saudi Arabian Oil Co. (Aramco) offer a strong insight into the kingdom’s robust hydrocarbons complex.

Unlike other major oil players, which posted losses, Aramco’s net income stood at USD 6.6 billion in the second quarter of 2020 and USD 23.2 billion for the first half. Free cash flow stood at USD 21.1 billion in the first six months of the year, despite challenging market conditions caused by the COVID-19 pandemic.

Indeed, Aramco achieved the highest single day crude oil production in its history of 12.1 million barrels on 2 April 2020.

“Strong headwinds from reduced demand and lower oil prices are reflected in our second quarter results. Yet we delivered solid earnings because of our low production costs, unique scale, agile workforce, and unrivalled financial and operational strength,” Aramco president and CEO Amin H. Nasser said.

The company will issue a dividend of USD 18.75 billion for the second quarter, compared to USD 13.4 billion for the same period in 2019. Most majors including BP Plc and Royal Dutch Shell Plc. cut their dividends in the quarter.

Aramco’s capital expenditure stood at USD 13.6 billion in the first half of the year and aims to spend between USD 25 billion to USD 30 billion for the full year.

Aramco completed its 70% acquisition of Saudi Basic Industries Corp., while Fadhili Gas Plant reached its full production capacity of 2.5 billion cubic feet per day during the second quarter.

Aramco’s CEO said during an earnings call that he had seen a recovery in energy markets, with demand picking up after months of lockdown.

“We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies," Nasser said. "Meanwhile, we continue to place people’s safety first and have adapted to the new normal, implementing wide-ranging precautions to limit the spread of COVID-19 wherever we operate.”

The company is also making progress in reducing its carbon emissions and intensity.

Saudi Aramco joined its fellow members of the Oil and Gas Climate Initiative (OGCI) in June to pledge to reduce the average carbon intensity of their aggregated upstream oil and gas operations to between 20 and 21 kilograms of CO2 equivalent per barrel of oil equivalent (CO2e/boe) by 2025, from a collective baseline of 23 kg CO2e/boe in 2017. Aramco’s own upstream carbon intensity, which has been verified by an independent third party, stood at 10.4 kg CO2e/boe in 2019.

The hard-fought agreements put in place by Saudi Arabia and its Organization of the Petroleum Exporting Countries (OPEC) counterparts and other allies have helped oil slowly climbed above USD 40 per barrel for the past few weeks.

Energy research firm IHS Markit recently revised its price outlook for Brent to USD 42.35 per barrel this year and USD 49.25 per barrel in 2021 – up USD 7.09 and USD 5.25 per barrel, respectively, from its outlook in May.

“The record cuts set in motion in May and June by Saudi Arabia and its OPEC+ partners played a pivotal role in accelerating the improbable rebalancing of global oil markets,” said Roger Diwan, vice president financial services, IHS Markit. “With demand recovering from April lows and after giving markets an extra month to find their footing, these exporters have now moved from managing the immediate surplus of the crisis towards managing the recovery.”

OPEC’s latest monthly report notes that direction of oil prices in the second half of the year will be dictated by concerns over a second wave of infections and higher global stocks.

“Product inventories may remain elevated due to weak road and air transport fuel demand, while gasoil, fuel oil and naphtha prices are expected to continue to receive some support from sectors less affected by the pandemic, such as the home heating and petrochemical sectors,” the group said in its August report.

OPEC and its allies will need to maintain its effort to support market by participating in voluntary production adjustments, apart from initiatives by governments to revive the global economy.

OPEC expects global oil demand this year to fall by 9.1 million barrels per day (bpd) on the back of weaker GDP data in a few non-OECD countries.

“World oil demand growth in 2021 was kept unchanged as compared to last month’s report. Oil demand is foreseen increasing by around 7.0 million bpd with global total oil demand reaching 97.6 million bpd,” the group said. “The forecast assumes that COVID-19 will largely be contained globally with no major disruptions to the global economy.”