Saudi Aramco's Q2 hydrocarbon output falls 8%; profit surges almost 4 times

Saudi Aramco, the world's largest oil company, said Aug. 8 that its hydrocarbons production fell 8% to 11.7 million boe/d in the second quarter from the year-earlier period due to OPEC+ cuts, but its profit surged almost four times thanks to higher oil prices and a recovery in worldwide demand.

Net income soared to $25.5 billion in the second quarter from $6.6 billion a year earlier, the company said in an earnings statement. Aramco's total hydrocarbon production, which averaged 12.7 million boe/d in the second quarter of 2020, fell mainly due to OPEC+ cuts this year, CEO Amin Nasser said in a media call with journalists.

"Our second quarter results reflect a strong rebound in worldwide energy demand and we are heading into the second half of 2021 more resilient and more flexible, as the global recovery gains momentum," Nasser said in the statement. "While there is still some uncertainty around the challenges posed by COVID-19 variants, we have shown that we can adapt swiftly and effectively to changing market conditions."

The Q1 dividend of $18.8 billion was paid in the second quarter, and the Q2 dividend of $18.8 billion will be paid in the third quarter, the company said.

Boosting capacity

Aramco is working on boosting its maximum sustainable capacity to 13 million b/d from 12 million b/d and expects most of the increase to come from offshore fields, Nasser said on the call. Fields that will contribute to production increments are Zuluf, Marjan and Berri.

"We are diligently working on increasing the capacity," he said. "We are just doing currently the front end engineering to increase maximum sustainable capacity from 12 million b/d to 13 million b/d and as soon as we complete the front end engineering, which usually takes approximately two years, we will advise you accordingly on terms of on-stream date."

Saudi Aramco expects global oil demand to rise by the end of 2021 and in 2022 on economic recovery and higher oil demand, particularly in the US and China, the CEO added.

"Our expectation that recovery will continue, yes variants are having a certain impact; however we are seeing more openings of economies and we expect by year end the demand will be around 99 million b/d," he said. "There is strong economic recovery that we see and demand rebound especially from the US and China and we expect it to be at a 100 million b/d next year as a forecast for total demand."

OPEC in July put 2021 global oil demand at 96.58 million b/d and 2022 at 99.86 million b/d.

Maintaining capex

Capital expenditure was $7.5 billion in the second quarter, up 20% from a year earlier and the company expects 2021 total to be approximately $35 billion.

"Our projects are going as planned some of them to do with maintaining MSC [maximum sustainable capacity], and certain investments in downstream," Nasser told reporters.

"However, we are looking at opportunities for growth and we will be considering that this year and [in] future years," he added, without elaborating.

The company is also considering investment transactions similar to the $12.4 billion deal clinched with a host of investors led by EIG for a 49% stake in newly formed Aramco Oil Pipelines Co.

Under the deal announced April 9, Aramco Oil Pipelines Co., a newly formed unit of the state oil company, will lease usage rights in Aramco's stabilized crude oil pipeline network for 25 years, in exchange for a tariff paid by Aramco for the crude flows through the network, backed by volume commitments.

"We are working on a good number of deals," Nasser said, without being more specific.

Aramco is still doing its due diligence to buy a 20% stake in the oil-to-chemicals unit of Reliance Industries, the CEO said. The deal could not progress in 2020 after the oil price crash and demand destruction caused by the pandemic, which saw Aramco tighten its belt.

"India is a very important market for us. We continue to review opportunities in India," he said. "We are still doing our due diligence (on the Reliance deal). We were delayed a little bit because of COVID 19 but we are back on track doing our due diligence."

Hydrogen supply

The company is working on developing its blue hydrogen supply, which will depend on global demand and costs, Nasser said.

"Hydrogen is an area where we have a lot of focus on right now. We are interested in blue hydrogen and we identified good aquifers to sequester CO2," he said.

"We completed a lot of work so far. Right now when it comes what is our target, it will all depend on the markets that we are going to supply in the future and offtake agreements."