The easing of COVID-19 restrictions, stimulus measures, vaccination campaigns, and accelerating economic activity were the key factors helping Saudi Aramco and other oil giants deliver stellar numbers for the second quarter.
Solid oil demand has turned the fortunes of the world’s largest oil giant Saudi Aramco (TADAWUL: 2222), the Saudi State giant reported a whopping ~300% increase in its revenue for Q2 2021.
For the second quarter, Saudi Aramco reported a net income of $25.5 billion with its evidence staying at $18.8 billion. However, for Q2 2020, the net income for Saudi Aramco stood only at $6.6 billion. This was considering major lockdowns worldwide amid the peak of the pandemic period.
Thus, the recovery is the result of the massive recovery in global oil demand as the economies reopen post the pandemic. Aramco also noted that the easing of COVID-19 restrictions, stimulus measures, vaccination campaigns, and accelerating economic activity were the key contributors to the boost in its revenue.
The result is beating analysts’ expectations of $24.7 billion in net income. In a statement published on Sunday, August 8, Aramco president and CEO Amin Nasser said:
“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”.
Also, for the first half of 2021, Aramco’s net income stood at $47.2 billion. This is more than a 100% increase. Nasser further added that “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”.
Other big players in the oil market have also reported strong earnings. ExxonMobil reported a net income of $4.69 billion in Q2 2021, against a $1.08 billion loss during Q2 2020. Royal Dutch Shell also reported its highest ever quarterly profits in two years.
Saudi Aramco Dividend Plans
For the second quarter of 2021, Aramco’s free cash flow stood at $22.6 billion. The free cash flow for the first half of 2021 stands at a massive $40.9 billion.
This is massive since the free cash flow has surged past the quarterly dividend of $18.75 billion. Aramco is already paying the highest dividends among the world’s oil giants. However, analysts are demanding a higher payout amid the improving outlook. In a research note, the Bank of America (BoA) analysts noted:
“A dividend increase is needed to stay competitive. Higher oil prices and OPEC+ driven production increases should support a significant free cash flow increase over the next couple of years”.
However, Aramco has clarified that its dividend shall be staying at normal levels for the current quarter. During Sunday’s call, Nasser told CNBC:
“We are looking at our sustainability program. A lot of the elements of our capital program that we are currently considering have to do with crude-to-chemical and hydrogen, and all of these programs represent great opportunities, especially with the Shareek program.”
Oil prices have surged 40% so far in 2021. This has also prompted other big rivals to increase their dividend payout.
“Our expectation is that the recovery will continue. We are seeing more openings of economies, and we expect by year-end the demand will be around 99 million barrels… and 100 million barrels next year as a forecast for total demand,” noted Nasser, commenting on future demand for oil.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.