Saudi Aramco posts record $161 billion profit for 2022

Aramco is one of the most valuable companies in the world, with a market cap of $1.9 trillion, briefly capturing the top spot from Apple Inc.

in May. His performance has helped boost Saudi economic growth even as the United States and Europe fret about recession. The kingdom, the region’s largest economy, recorded the world’s fastest gross domestic product growth among major economies last year, according to the International Monetary Fund, and 2023 is expected to be another profitable year for the most largest oil exporter in the world.

On Sunday, the government announced the creation of a new national airline, Riyadh Air, as part of an effort to reinvent Saudi Arabia as a global business and tourism hub that would compete with other airlines. of the Persian Gulf. This followed Friday’s announcement of a surprise deal between Saudi Arabia and Iran to renew diplomatic ties, hyped by China, as Beijing’s influence in the region grows.

The oil boom has partly fueled Saudi Arabia’s willingness to pursue foreign policies and economic interests at odds with the United States Last year, Saudi Arabia, the de facto leader of the Organization of Oil exporters rejected US demands to pump more oil to help tame soaring crude prices.

Aramco is the latest major oil company to post record annual profit last year, continuing a sharp recovery after many companies were battered by a historic drop in energy demand during the pandemic that led some to inactive platforms and reduce production. Aramco and Exxon Mobil Corp.

were notable outliers, arguing more forcefully than most that industry must continue to invest in fossil fuel production.

Aramco chief executive Amin Nasser said the company had spent $37.6 billion to increase production capacity and would significantly increase that amount in coming years.

“Given that we expect oil and gas to remain essential for the foreseeable future, the risks of underinvestment in our industry are real, including contributing to higher energy prices,” Nasser said. .

The company, majority-owned by the Saudi government, unexpectedly increased its dividend by 4% to $19.5 billion for the fourth quarter of last year, to be paid in the first quarter of 2023. The board of directors of the company also recommended the distribution of free shares to eligible shareholders on the basis of one share for 10 shares held.

Aramco’s dividend pledge has been a key source of funding for the Saudi government and a bellwether for investors in the energy sector – a large, recurring payment the company has pledged to make in an effort to attract investors to its long-delayed initial public offering in 2019.

Mr Nasser said capital spending jumped 18% in 2022 as the company plans to increase its maximum sustainable capacity to 13 million barrels per day by 2027 from 12 million per day currently. Aramco aims to spend $45 billion to $55 billion this year, well above a total of $37.5 billion in capital spending from Exxon Mobil and Chevron Corp.

Saudi Crown Prince Mohammed Bin Salman – who runs the kingdom’s day-to-day affairs for his elderly father King Salman – has directed oil policy through OPEC to keep crude prices high for as long as possible , while his government tries to implement policies that will protect the kingdom from boom and bust cycles.

The crown prince is stepping up efforts on an ambitious program, known as Vision 2030, to diversify the economy away from oil, aiming, for example, to transform his once cloistered kingdom into a global destination for entertainment and tourism. Yet oil remains the engine of the economy.

As global economies rebounded over the past year and Russia’s invasion of Ukraine scrambled energy markets, oil prices soared. Last year, international benchmark Brent briefly hit $139 a barrel. Oil and gas companies were flooded with cash and spent tens of billions of dollars on stock buybacks and dividends.

While the West largely shuns Russian oil and gas following sanctions on Moscow over its invasion of Ukraine, Middle Eastern oil states now have a new market in Europe after years of concentration. on sales to Asia. Aramco sees Europe as a future market due to changing geopolitics and its decision to replace all Russian energy imports by mid-2024.

Saudi Arabia recorded the fastest growth 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 this commodity, against 5.1% on average last year, according to Eurostat.

In recent months, Saudi Energy Minister Abdulaziz bin Salman has signaled that the kingdom aims to supply more crude to Europe.

“We are engaged with so many governments,” Prince Abdulaziz said at an industry event in October. “Just to give you 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 from $107.5 billion in 2021. Its leverage ratio, a measure of debt to equity, decreased by 7.9% last year, compared to 12% at the end of 2021.

The Gulf has seen oil booms before, when crude prices topped $100 a barrel and monarchs invested billions of dollars in white elephant projects that were never completed and handed out oil. money to citizens to buy aid. When prices crashed in the past, Saudi Arabia introduced austerity measures.

Officials and economists say this boom is different because it comes as some Gulf countries move to liberalize their economies.

The kingdom and other Gulf states have also used their windfall oil revenues to help troubled neighbors such as Egypt, Pakistan and Turkey, doubling down on a diplomatic tool they have long used to bolster their geopolitical power. .

Write to Summer Said at summer.said@wsj.com