After Profits Fall 44%, Saudi Aramco Sees Green Shoots Ahead

The world's largest oil company has taken its lumps from 2020 and is ready to look forward to higher oil demand and the coming of a hydrogen market.

The Tanajib oil complex located on the coast of the Arabian Gulf, about 200 km north of Dammam.
Source: Saudi Aramco.

Saudi Aramco reported this week a net income for 2020 of $49 billion, a 44% drop from the previous year when profits totaled more than $88 billion. The world’s largest oil producer has also reduced its employee count by 10% to around 79,800 in the wake of a global pandemic that led to a severe downturn in energy prices.

“In one of the most challenging years in recent history, Aramco demonstrated its unique value proposition through its considerable financial and operational agility,” CEO Amin Nasser said in a statement. “As a result, our financial position remained robust.”

Aramco sees itself holding a strong hand as it expects economies in Asia and elsewhere to begin picking up and driving global demand up to 99 million B/D by year's end. “We are very bullish about oil demand going forward,” Nasser added during the follow-up call with investment bankers.

He also reiterated plans announced last year to boost overall capacity in the Kingdom to 13 million B/D—an increase of almost 1 million from its current ceiling. Nasser said on Monday that the increase could take a few years to fully materialize.

The big signal to markets is that Aramco intends to expand upon its spare capacity while maintaining some of the lowest lifting costs in the industry. Aramco reports a development cost of just $7 per BOE.

The year-end statement shows that cash provided by operations was $76 billion, down from $111 billion in 2019. Almost all the cash flow was used to supply $75 billion in dividends, the bulk of which were directed to the Saudi government that owns 98% of the company.

In 2021, Aramco plans to spend around $35 billion on capital projects vs. its original budget adopted in 2019 that called for up to $45 billion in spending.

Aramco is also looking to maintain its edge in the industrywide race to lower emissions. The national oil company estimates it generates 10.5 kg of CO2 per BOE compared with the target of 20 kg set by the Oil and Gas Climate Initiative (OGCI).

Its estimated methane intensity, or the amount of natural gas that is released in the field, was 0.6% of what it produced. This is almost four times lower than the 2019 average of the members of the OGCI, a group that includes Aramco and 11 other large oil companies.

Hydrogen features heavily in the future of Aramco as well.

The company said it is focusing on the potential of “rapid growth in hydrogen demand” and believes it holds several market advantages if that happens. Those include its supply of natural-gas feedstocks and its potential for large-scale carbon-capture programs from the geologic and operational perspective.

Theses financial and operational disclosures are the result of Aramco’s move to sell shares to private investors on the Saudi stock exchange in 2019.

Other Key Highlights

  • Average crude production in 2020 was 9.2 million B/D, or 12.4 million BOE with gas and other petroleum liquids accounted for.
  • In April, the worst month for oil prices in history, Aramco reached its highest single-day production rate of 12.1 million B/D.
  • In August, the company achieved its highest single-day output for natural gas at 10.7 Bcf/D. The company noted the gas flows were from conventional and unconventional developments.
  • Also in August, Aramco exported what it says was the world’s first cargo of blue ammonia that was created from hydrocarbons and involved carbon-capture to create a zero-emissions fuel.
  • Aramco was granted 683 US patents for technology, a new company record. Aramco said its peer group average is 147 patents received annually.