Aramco is not easing the pace on fossil fuel investments while building up capacity on renewables. The dual strategy should pay off handsomely. Image Credit: AFP

Saudi Aramco — the world’s second most valuable company — recorded the highest yearly profit ever obtained by an oil and gas firm in 2022. The state-owned company reported net income of $161.1 billion last year, a 46.5 per cent increase.

Rising oil and gas prices enhanced refined product margins, and Aramco’s large sales volume contributed to that significant profit. In fact, the 2022 net profit is nearly equal to the total profit numbers put out by the world’s top five private-sector oil companies for the same year.

Aramco benefits from the fact that Saudi Arabia holds the world’s second-largest oil reserves, after Venezuela. Because of the country’s geology, the cost of drilling for oil is substantially cheaper than elsewhere, helping to boost profits.

Favourable macros

The price for Brent crude, the international standard, increased by nearly 57 per cent to more than $100 per barrel at the start of 2022, and which was mirrored in the increase in Aramco revenues.

Last year, several reasons contributed to rising oil prices, including geopolitical concerns that resulted in tighter access for Moscow’s supply, particularly seaborne crude and oil products, and a surge in energy consumption as most of the global economy recovered from the pandemic.

Capital spending

It’s worth emphasizing how much Aramco expects to spend this year to develop resources and grow output, despite the fact that private oil companies are tightening their belts. As the world begins to shift away from oil, it is becoming more likely that state-owned enterprises will provide a greater amount of fossil fuels in the future. Aramco plans to increase oil production capacity from 11.5 million barrels per day to 13 million barrels per day by 2027. Its capital spending will rise by 33 per cent to between $45 billion and $55 billion, up from $37.6 billion last year.

Among the major projects Aramco launched last year was the construction of an integrated refinery and petrochemical complex in northeast China, its largest customer.

Reliance on oil

According to Aramco, it will take time to change a system that is so heavily reliant on fossil fuels, and the company will continue to profit from this high demand.

Sustainable dividends

Aramco announced a dividend of $19.5 billion for the fourth quarter of 2022, an increase of 4 per cent from the third quarter. Since its IPO in 2019, Aramco has consistently increased dividend payments, with the current indicated yield around 4.24 per cent.

The company could increase shareholder value by maintaining a sustainable dividend policy and with the aid of record profits.