Saudi Arabia may invest US$50 billion to expand oil production in 2022

Dubai state oil company Aramco, under pressure from the West to boost output amid rising prices, pledged on Sunday to boost investment by around 50% this year, as it reported a doubling in 2021 profits.

Oil prices jumped 50% last year as demand recovered from the Covid-19 pandemic, and then surged above $100 a barrel to 14-year highs in February after Russia invaded Ukraine, prompting Western countries asking major producers to increase production.

Aramco said it would increase its capital expenditures (capex) to $40-50 billion this year, with further growth expected through the middle of the decade.

Capex was $31.9 billion last year, up 18% from 2020 — indicating an increase of about 50% for this year in the mid-guide range.

Asked whether Aramco would pump more oil to fill any market gaps left by the war in Ukraine, CEO Amin Nasser said it would produce according to Saudi energy ministry guidelines.

The company said it plans to increase its “maximum sustainable capacity” of crude oil to 13 million barrels a day by 2027 and wants to increase gas production by more than 50% by 2030. Its average hydrocarbon production was 12.3 million. of barrels of oil equivalent per day last year.

Aramco earned $110 billion in net income in 2021, up from $49 billion a year ago and compared to the average analyst estimate of $106 billion, according to Refinitiv Eikon. With an increase in production and prices, analysts expect net income to reach $140 billion in 2022.

Aramco shares rose more than 4% in early trading to a high of 43.85 riyals, valuing it at 8.76 trillion riyals ($2.34 trillion).

A $2 trillion valuation was a goal pursued by Saudi leader Crown Prince Mohammed bin Salman ahead of the company’s record $29.4 billion initial public offering in 2019. He announced plans to sell more Aramco shares.

Aramco’s valuation rise on Sunday put it above Microsoft, although it remains behind Apple’s $2.68 trillion.

The Saudi government said last month that Crown Prince Mohammed, who is leading a massive investment effort to diversify the kingdom’s economy, had transferred 4% of Aramco’s shares to the country’s sovereign wealth fund.

boosting capex

“They are substantially increasing reinvestment and will likely use (free cash flow) to deleverage the balance sheet,” said Yousef Husseini, head of materials team at EFG Hermes Research.

Aramco said its free cash flow was $107.5 billion last year, compared to $49.1 billion in 2020. It declared a $75 billion dividend for 2021, in line with its pledge. previous.

The company said it also plans to develop significant hydrogen export capability and become a global leader in carbon capture and storage technology.

Nasser said on an earnings call that global oil demand is growing healthy and idle production capacity is shrinking.

In a separate statement, he said that “while economic conditions have improved considerably, the outlook remains uncertain due to various macroeconomic and geopolitical factors.”