Saudi Arabia’s national oil company reported record annual profits of US$161 billion for 2022, the largest ever by an energy company, boosting the kingdom’s coffers as it demonstrates its global business and foreign policy ambitions and its heavy reliance on the wants to limit oil.
Saudi Arabian Oil Co. 2222 1.23%, known as Aramco, said its full-year profit rose 46% in 2022 amid a rise in oil prices that has helped cement the kingdom’s dominance as the world’s top oil producer to consolidate and strengthen its geopolitical power era of shifting alliances in the Middle East.
Aramco is one of the most valuable companies in the world with a market cap of $1.9 trillion and briefly surpassed Apple Inc. in May. Its performance has helped boost economic growth in Saudi Arabia, even as the US and Europe worried about a recession. The kingdom, the region’s largest economy, had the fastest gross domestic product growth in the world among major economies last year, according to the International Monetary Fund, and 2023 is expected to be another profitable year for the world’s largest oil exporter.
On Sunday, the government announced the creation of a new national carrier, Riyadh Air, as part of an effort to reinvent Saudi Arabia as a global business and tourist hub that would compete with other carriers in the Persian Gulf. This was followed on Friday by the announcement of a surprise deal between Saudi Arabia and Iran to renew diplomatic ties, brokered by China as Beijing’s influence in the region grows.
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The oil boom has in part fueled Saudi Arabia’s willingness to pursue foreign policy and economic interests at odds with the US Tame soaring crude oil prices.
Aramco is the latest major oil company to post record annual profits last year, continuing a sharp reversal after many companies were hit by a historic drop in energy demand during the pandemic, prompting some to shut down rigs and scale back production. Aramco and Exxon Mobil Corp. were notable outliers, arguing more forcefully than most that industry needed to continue investing in fossil fuel production.
Aramco chief executive Amin Nasser said the company has spent $37.6 billion to expand its production capacity and will increase that amount significantly in the coming years.
“Given that we expect oil and gas to remain essential for the foreseeable future, the risks of underinvesting in our industry are real – including contributing to higher energy prices,” Mr. Nasser said.
The company, which is majority-owned by the Saudi government, unexpectedly increased its dividend by 4% to $19.5 billion for the fourth quarter of last year, which is expected to be paid in the first quarter of 2023. The company’s board of directors also recommended that eligible shareholders receive bonus shares at the rate of one share for every 10 shares held.
Aramco’s dividend promise was a key source of funding for the Saudi government and a flagship for energy investors — a large, recurring payout the company promised to lure investors to its long-delayed 2019 IPO.
Mr. Nasser said capital spending rose 18% in 2022 as the company plans to increase its maximum sustainable capacity from the current 12 million barrels per day to 13 million barrels per day by 2027. Aramco is targeting spending between $45 billion and $55 billion this year, well above Exxon Mobil and Chevron Corp’s combined $37.5 billion in capital expenditures.
Aramco’s results solidify Saudi Arabia’s dominance as the world’s top oil producer.
Photo: MAXIM SCHEMETOV/Portal
Saudi Crown Prince Mohammed Bin Salman – who directs the kingdom’s day-to-day affairs for his aging father, King Salman – has channeled oil policy through OPEC in a bid to keep crude prices high for as long as possible while his government seeks to implement the policy that will protect the kingdom from boom and bust cycles.
The crown prince is doubling down on his ambitious program known as Vision 2030 to diversify the economy away from oil, aiming, for example, at turning his once-closed kingdom into a global entertainment and tourism destination. Nevertheless, oil remains the engine of the economy.
As the global economy recovered last year and Russia’s invasion of Ukraine disrupted energy markets, oil prices have soared. Last year, the international benchmark Brent briefly reached $139 a barrel. Oil and gas companies have been awash with cash, pumping tens of billions of dollars into share buybacks and dividends.
With the West largely eschewing Russian oil and gas amid sanctions imposed on Moscow over its invasion of Ukraine, Middle East petrostates now have a new market in Europe after years of focusing on sales to Asia. Aramco sees Europe as the market of the future due to changing geopolitics and its ambition to replace all Russian energy imports as early as mid-2024.
According to Eurostat, Saudi Arabia was the fastest growing of all major oil suppliers to the European Union in the third quarter of last year, with a 9.1% market share of imports of the commodity, compared to an average of 5.1% last year.
In recent months, Saudi Energy Minister Abdulaziz bin Salman has signaled that the kingdom is aiming to ship more crude oil to Europe.
“We work with so many governments,” Prince Abdulaziz said at an industry event in October. “Just to give an example, Germany, Poland, Czech Republic, Croatia, Romania and others.”
High oil prices pushed Aramco’s free cash flow to $148.5 billion last year, compared to $107.5 billion in 2021. Gearing, a measure of debt to equity, declined last year down 7.9% year-on-year, compared to 12% at the end of 2021.
The Gulf has had oil booms before, when crude prices soared above $100 a barrel and monarchs invested billions of dollars in white elephant projects that were never completed, handing out cash to citizens to buy support. When prices plummeted in the past, Saudi Arabia introduced austerity measures.
This boom is different, officials and economists say, as some Gulf states liberalize their economies.
The kingdom and other Gulf states have also used their windfall oil earnings to help troubled neighbors like Egypt, Pakistan and Turkey, doubling down on a diplomatic tool they have long used to build their geopolitical power.
Write to Summer Said at [email protected]
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