Saudi Aramco may invest $50 billion to increase oil capacity this year

Oil prices jumped 50% last year as demand rebounded from the Covid-19 pandemic, then topped $100 a barrel in February to a 14-year high after Russia’s invasion of Ukraine, prompting Western countries to urge major manufacturers increase output.

Aramco has said it will increase its capex (capex) to $40-50 billion this year, with further growth expected until about the middle of the decade. Capital expenditure last year was $31.9 billion, up 18% from 2020, indicating an increase of about 50% this year in the middle of the forecast range.

When asked if Aramco would pump more oil to fill any gaps in the market According to CEO Amin Nasser, who remained after the war in Ukraine, the company will produce products in accordance with the instructions of the Saudi Arabian Ministry of Energy.

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

Aramco posted a net profit of $110 billion in 2021, up from $49 billion a year earlier and compared to the average analyst estimate of $106 billion, according to Refinitiv Eikon. With both production and prices rising, 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 rials, valuing 8.76 trillion rials ($2.34 trillion).

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

Sunday’s surge in Aramco’s valuation lifted it above Microsoft’s, though it still lags behind Apple’s $2.68 trillion.

The Saudi government said last month that Crown Prince Mohammed, who is leading a massive investment drive to diversify the kingdom’s economy, has donated a 4% stake in Aramco to the country’s sovereign wealth fund.

Increasing investment

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

Aramco said its free cash flow was $107.5 billion last year, up from $49.1 billion in 2020. The company announced a $75 billion dividend for 2021, in line with its previous pledge.

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

Nasser said at a press conference that global demand for oil is growing at a healthy pace and spare capacity is shrinking.

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

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