Aramco’s 2021 Financials Beats Predictions, Investments Targeted to Expand 

With a net income of $110.0 billion (2020: $49.0 billion), cash flow from operating activities of $139.4 billion (2020: $76.1 billion), and free-cash-flow of $107.5 billion (2020: $49.1 billion), the results have been better than most analysts even expected.

Analysts had expected a net profit of $106 billion in 2021, according to the mean estimate of analysts in Refinitiv’s Eikon. One major result also shows a very positive trend. Aramco’s current gearing ratio has improved to 14.2% as of December 31 (in comparison to the end of 2020: 23.0%). 

In the coming years, the Saudi giant is going to focus on growth, while putting a major emphasis on blue hydrogen and carbon capture projects. The latter two fall in line with its future role of critical supplier of low-carbon hydrocarbons and potential renewables for the global markets. 

Aramco’s strategic investments

The oil and gas giant also recognizes by this strategic investment strategy that there is an increased pressure on oil-gas and energy companies to be looking at environmental, social, and governance issues (ESGS). Investors and clients are becoming very actively involved in a more ESG focused operating model, partly because of societal pressure but also for international rating issues. 

Aramco also declared a full-year cash dividend of $75 billion, which includes $18.8 billion for Q4 2021. At the same time, based on its strong 2021 earnings performance, the Aramco board recommends $4 billion in retained earnings to be capitalized and bonus shares to be distributed to shareholders. 

Analysts, and oil market participants, have been especially awaiting Aramco’s capital expenditure guidance for 2022, as the latter will give an indication of where the company will stand. Aramco reports that it has increased capital expenditure guidance by $40-50 billion in 2022. A potential additional increase in spending is however already expected for H2 2022, partly based on the current high oi land gas prices. 

In a traditional statement, as expected by Aramco in the market, the company has announced also that it is continuing with its production expansion or crude oil Maximum Sustainable Capacity (MSC) to 13 million bpd by 2027. The world’s leading oil giant also stated that it will be targeting an increase of more than 50% by 2030 of its gas production.

Aramco’s downstream is slated to be seeing an expansion of its liquids to chemicals capacity to up to 4 million bpd. At the same time, Aramco reiterated again that it wants to be a significant global hydrogen exporter, while a global leader in CCS. 

NetZero strategy

As already stated during the COP26 discussions in Glasgow in 2021, the Kingdom has committed itself to NetZero strategy. In line with this national strategy, but also partly forced by market and investment partners, Aramco stated that it wants to achieve NetZero Scope 1 and Scope 2 greenhouse gas emissions of its wholly-owned operated assets by 2050. The latter includes a NetZero strategy for Upstream methane emissions by 2030.

These statements are strong and will be checked for sure by market partners in the coming years. It however already should be clear that the Saudi giant has made clear in the report that it targets NetZero 2050 for its own fully-owned (!) operated assets, which means JVs with others will be not included.

Aramco’s CEO Amin Nasser stated that “our strong results are a testament to our financial discipline, flexibility through evolving market conditions and steadfast focus on our long-term growth strategy, which targets value growth for our shareholders”.

He also reiterated that “although economic conditions have improved considerably, the outlook remains uncertain due to various macro-economic and geopolitical factors. But our investment plan aims to tap into rising long-term demand for reliable, affordable and ever more secure and sustainable energy.” 

When addressing the growing international call on OPEC, especially Aramco and its compatriot ADNOC, to increase overall production and export volumes to quell high oil and gas prices worldwide, Nasser said that “we recognize that energy security is paramount for billions of people around the world, which is why we continue to make progress on increasing our crude oil production capacity, executing our gas expansion program and increasing our liquids to chemicals capacity. “

The latter statement is as expected, as the official OPEC+ strategies set by the Kingdom, UAE, and Russia, are still in place. Even though Aramco is the main income generator of the Kingdom, and the majority held Saudi entity, it officially needs to follow the political line of its government. 

The FY2021 will be in the books as a major profitable period, based on the fact that Aramco’s net income increased by 124% to $110.0 billion in 2021, compared to $49.0 billion in 2020. The main underlying fundamentals for this are clear, higher oil and gas prices, stronger demand, strong margins overall and SABIC’s financial results consolidation.

Important for the company’s future is also that its net gearing ratio has been substantially lowered, from 23.0% in 2020 to 14.2% in 2021. Financial analysts have warned the years before that Aramco’s gearing could become a problem, also linked to its commitment to keep dividends at the levels promised. 

During the year 2021 Aramco’s official hydrocarbon production is set at 12.3 million barrels of oil equivalent per day (million boepd), with 9.2 million bpd of crude oil. The company reiterated that upstream is on track with its growth plans to promote long-term productivity of Saudi Arabia’s reservoirs and is proceeding with implementing the Government’s directive to increase its crude oil MSC to 13 million bpd by 2027.

In 2021 it successfully completed and tied in the ‘Ain Dar and Fazran crude oil increments, and construction progress continued on the Marjan and Berri increment programs. 

At the same time, Aramco’s focus on gas production is significant and of strategic importance for the future. In November 2021, it has commenced the Jafurah unconventional gas field. Aramco expects to produce by 2030 a sustainable gas rate of two billion standard cubic feet per day (bscfd) of natural gas. 

FY2022, based on current oil and gas prices could be even beating the currently reported figures. However, there could be still some black swans in the market. Without any doubt, Aramco’s role in the market could be changed dramatically if the OPEC+ bromance is going to be ended.

The coordination between Moscow-Riyadh-Abu Dhabi is feeling the pressure of the Ukraine war and international sanctions. A break-up could be putting heavy pressure on Aramco’s production capacity as the call will be much stronger.

Another still major issue is the impact of the Iran JCPOA discussions. A return of Iran into global markets could put a downward price level in place. At the same time, a failure in JCPOA will push prices to unforeseen levels, possibly resulting in demand destruction globally.