A picture of the Saudi Aramco logo is seen at an oil facility in Abqaiq, Saudi Arabia on October 12, 2019.
Maxim Shemetov | Reuters
DUBAI, United Arab Emirates – Oil giant Saudi Aramco posted a 158% increase in third-quarter net income to $30.4 billion, as the world’s largest oil companies continue to benefit from the reopening of the global economy and higher oil and gas prices.
The result beat expectations, with analysts expecting an average net income of $29.1 billion for the quarter. Aramco reported a net profit of $11.8 billion in the third quarter of 2020.
“Our exceptional performance in the third quarter was the result of increased economic activity in key markets and a recovery in energy demand,” Amin Nasser, President and CEO of Aramco, said on Sunday.
“There are still some headwinds 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,” Nasser added.
Aramco said that the increase in net income came as a result of higher crude oil prices and sales volumes, and the strengthening of refining and chemicals margins in the quarter, as the company benefits from the recovery in global energy demand and increased economic activity in key markets.
Unexpected gains in the market
WTI has risen above $85 in recent weeks, a level not seen since 2014, as the market shifted focus from a recovery in demand to a scarcity of supply. Natural gas prices are up about 130% this year, which means the full extent of the global energy crisis is likely to show up in fourth-quarter results.
Aramco announced a large dividend of $18.8 billion that will be paid in the fourth quarter. Payments could be covered by a jump in free cash flow to $28.7 billion in the third quarter, up from $12.4 billion in the same period in 2020. Indebtedness, a measure of a company’s debt position, also improved to 17.2% from 23% owed to higher rates. Oil and cash flow strengthening.
Aramco also said that it will invest in the future with capital expenditures of $7.6 billion in the third quarter, representing an increase of 19% compared to the same period in 2020. Aramco said it expects capital expenditure for 2021 to be about $35 billion.
The results confirm a bumper quarter for “Big Oil,” a term used to refer to the world’s largest oil and gas companies. US oil majors ExxonMobil and Chevron also benefited from higher prices, posting profits that rose to multi-year highs this quarter. Royal Dutch Shell posted record cash flows, while TotalEnergies also saw a sharp rise in performance.
Profit and pressure
The strong numbers come as the sector faces renewed scrutiny from activists and ridicule over its climate ambitions. Companies including Aramco and UAE oil giant ADNOC launched climate initiatives just days before the COP26 climate summit, while at the same time planning to invest to boost oil production in the coming years.
““I think most people would agree that climate change is one of the biggest challenges facing society,” Aramco Chairman Yasir Al-Rumayyan told CNBC via email.
“We need a transition that does not ignore that petrochemicals are building blocks of modern life – including the smartphones we all use and the products we rely on to fight COVID,” he added.
Aramco aims to achieve net zero emissions from its wholly owned operations by 2050, while at the same time plans to increase oil production to 13 million barrels per day by 2037. A separate pledge from Saudi Arabia to invest nearly $190 billion to achieve net zero emissions by 2060 has received praise and skepticism from oil industry watchers.
“The reality is that the energy transition will be long and complex, and therefore oil and gas will continue to play a major role,” Al-Rumayyan said, while also providing commentary on the recent energy crisis and its link to the energy transition.
“The recent turmoil in the energy field around the world is evidence of the need for a stable and comprehensive energy transition,” Al-Rumayyan said. “We need a transformation that delivers reliable, affordable and low-cost energy supply that leaves no one behind,” he added.
Aramco said it will reveal more details about how it plans to navigate the energy transition and achieve its net-zero strategy in a sustainability report due for release in the second quarter of 2022.
“We are fully aware that the road ahead is long and the journey will not be easy,” Al-Rumayyan said. “We are confident in our ability to meet the challenges and provide leadership, expertise and tools to support global progress toward a low-emissions future.”