The Saudi Aramco logo is pictured at the oil facility in Abqaiq, Saudi Arabia on October 12, 2019.

Maxim Shemetov | Reuters

Saudi state oil giant Aramco reported a staggering 288% increase in net income to $ 25.5 billion for the second quarter, while maintaining its dividend of $ 18.8 billion amid large oil prices from higher prices and a rebound benefit from global demand.

Aramco’s net income of $ 25.5 billion for the quarter compared to $ 6.6 billion in the same quarter of 2020. Earnings exceeded expectations, with analysts posting an average net income of $ 24.7 billion for the quarter expect.

“Our second quarter results reflect a strong recovery in global energy demand and we are moving into the second half of 2021 with more resilience and flexibility as the global recovery picks up,” said Amin Nasser, President and CEO of Aramco, in an am Corporate statement published on Sunday.

Aramco said net income for the first half was $ 47.2 billion, compared to $ 23.2 billion in the first half of 2020, an increase of 103%. The company said the results were supported by easing Covid-19 restrictions around the world, vaccination campaigns, stimulus measures and accelerating activities in key markets.

“Although the challenges posed by Covid-19 variants are still uncertain, we have shown that we can adapt quickly and effectively to changing market conditions,” said Nasser.

Dividend plans

Aramco said free cash flow was $ 22.6 billion for the second quarter and $ 40.9 billion for the first half of 2021, compared to $ 6.1 billion and $ 21.1 billion, respectively. Dollars in the same time periods in 2020.

This is significant because free cash flow has now risen above the $ 18.75 billion quarterly dividend for the first time since the pandemic began. Aramco already pays the world’s largest dividend, but the improving outlook has led some analysts to call for higher payouts.

“A dividend hike is needed to stay competitive,” BofA analysts said in a research note ahead of the results. “Higher oil prices and OPEC + -driven production increases should support a significant increase in free cash flow over the next few years,” she added.

Aramco responded that its dividend would remain at “normal levels” for the quarter but would “advise” later on whether to stick to its current payout schedule.

“We’re looking at our sustainability program,” Nasser told CNBC on Sunday’s conference call. “Many of the elements of our capital program that we are currently considering have to do with crude oil-to-chemistry and hydrogen, and all of these programs offer great opportunities, particularly with the Shareek program,” he added.

Aramco, which is majority owned by the Saudi Arabian government, is an important source of income for the kingdom. “All of this will be reviewed with our board of directors and we will decide on an additional dividend payment at a later date,” said Nasser.

Price outlook

Oil prices soared around 40% to around $ 70 a barrel in 2021, prompting major oil rivals BP, Chevron and Royal Dutch Shell to raise dividends and launch share buyback programs.

“We assume that the recovery will continue,” said Nasser. “We’re seeing more economies opening and we expect demand to be around 99 million barrels by the end of the year … and 100 million barrels next year as a forecast for aggregate demand,” he added.

Amin Nasser, CEO of Saudi Aramco, gesticulates during a panel meeting on the third day of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, January 23, 2020.

Jason Alden | Bloomberg | Getty Images

Aramco also said it lowered its gearing ratio – essentially how much the company is debt-financed to equity – to 19.4% on June 30, down from 23% on December 31, 2020. The decrease was mainly due to higher cash and cash equivalents and stronger operating cash flows and proceeds related to Aramco’s most recent crude oil pipeline transaction.

“Our historic $ 12.4 billion pipeline deal was an endorsement of our long-term business strategy from international investors and represents a significant advance in our portfolio optimization program,” said Nasser.

Capital expenditures were $ 7.5 billion for the second quarter and $ 15.7 billion for the first half of 2021, up 20% and 15% respectively. Capital expenditures are expected to be around $ 35 billion in 2021, according to Aramco.

Saudi Arabia’s Crown Prince Mohammed bin Salman said the kingdom would sell more Aramco shares earlier this year, but the company made no comment on the plans. Aramco also briefly stopped commenting on a previously announced oil-to-chemicals deal with Indian conglomerate Reliance Industries, which is expected to be formalized later this year.

“We are advancing a number of strategic programs that focus on sustainability and low carbon fuels, maximizing the value of our assets and driving our downstream integration and expansion,” added Nasser.

“For all of these and other reasons, I am very positive about the second half of 2021 and beyond.”