Saudi Aramco, the world’s largest oil company, said it plans to use its enormous profits from last year to double down on boosting oil output capacity and move into shale drilling, which has transformed the oil industry in the United States.
The company on Sunday reported net income of $110 billion for 2021, more than double that of the previous year. The earnings mostly reflected higher prices as oil demand recovered from the steep falls in the early stages of the pandemic.
The rich earnings are allowing the company to invest in meeting what the Saudi leadership believes will be a strong global need for oil and natural gas in the next few years, as well as in technologies that could reduce the overall carbon content of the fuels it sells in the future. For instance, Aramco is investing in low-carbon hydrogen, a potential multipurpose fuel, and in storing carbon dioxide underground.
But oil and natural gas remain the key focus for capital spending, which is expected to rise to as much as $50 billion in 2022 from $31.9 billion in 2021.
On a call with analysts, CEO Amin H Nasser said oil demand was expected to continue to grow for the rest of the decade and that a major challenge for the world was finding the supply to meet that growth.
“Aramco will be a key part of the answer'', Nasser said.
The high prices for oil and gas and concerns about supplies in recent months represent something of a reaffirmation that there will be a role for Aramco for the foreseeable future.
While many companies are wary of investing in oil and gas because of climate change concerns, Nasser portrayed Aramco as a company with the cash to pursue wide-ranging growth opportunities in Saudi Arabia and beyond, mainly in Asian countries including China and India.
The price of Brent crude, the international bench mark, was trading at about $112 a barrel on Monday, after hitting nearly $140 a couple of weeks ago. It was about $70 in December.
A dark cloud was hanging over the bumper financial results. Nasser said that in recent weeks there had been an escalation of missile attacks at Saudi energy facilities by the Yemeni-based Houthi group. Nasser said Aramco had largely been able to keep operations going so far, but that with oil supplies tight, such attacks “are a real concern for the world.” The huge profits meant that Aramco was able to pay a hefty dividend of $75 billion for the year. Most of the money goes to the Saudi government, which owns more than 98% of the company, including 4% that was shifted last month to the Public Investment Fund, a vehicle for government projects including those favored by Crown Prince Mohammed bin Salman, the kingdom’s chief policymaker. Aramco also awarded one bonus share for every 10 shares.
Aramco said it was on the way to increasing oil production capacity to 13 million barrels a day from the current 12 million, a level that should eventually encourage higher production.
Aramco also said it was beginning development of a large shale gas field called Jafurah in the eastern part of the kingdom, where there are large oil fields. Production of gas, which is used in generating electric power and in industry, has taken a back seat to oil in the kingdom, but Nasser has pushed to increase gas output. Aramco anticipates investing as much as $100 billion in Jafurah over time, and the company said gas flows could rise more than 50% before the end of the decade. The output from the new gas fields, Nasser said, will be, in part, used to make hydrogen and are likely to supplant oil used in power plants, allowing for an additional 1 million barrels of oil a day for export.
Saudi Arabia has attracted criticism for keeping oil output low, contributing to sharp price rises over the last year. The company’s oil production was on average just 9.2 million barrels a day for 2021, as Riyadh strictly observed output quotas set by the Opec+ group of producing nations. Consuming nations, including the United States, have prodded the Saudis to increase production, with little success until now. The next meeting of Opec+ is scheduled for March 31.
If current trends in the energy industry prevail, Aramco could be even more profitable in 2022.
Neil Beveridge, an analyst at Bernstein, a research firm, estimated that Aramco could generate $140 billion in cash in 2022, assuming that current oil prices of about $110 a barrel for Brent crude continue through the year. Prices for Brent crude in 2021 were about $70 on average. — The New York Times
Stanley Reed, a London-based journalist, has been writing for The New York Times on energy, the environment and the Middle East since 2012
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