Improved oil prices supported Aramco’s results; capital investments align with plan: exec

Saudi Arabian Oil Co. (Saudi Aramco) maintained strong results in the second quarter of 2024 due to various factors, the most important of which was the improvement in global crude oil prices compared to Q1 2024, Executive Vice President and Chief Financial Officer Ziad Thamer Al-Murshed said.

 

This reflects the expected growth in seasonal demand for crude oil and lower global oil inventory, he said.

 

In an interview with Argaam, Al-Murshed explained that all of the company’s capital investments are going well, as per its expansion plans.

 

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Aramco is prepared to benefit from the continued growth in oil demand as the cost of production and the carbon intensity in its upstream segment are very low, along with surplus production capacity of nearly 3 million barrels per day (bpd).

 

The company's capital investments in Q2 2024 stood at $12.5 billion, an increase of 7% quarter-on-quarter (QoQ), which matches the growth strategy.

 

Global demand is expected to grow strongly, as inventories are at a five-year low with the opportunity for reliable supplies of low-cost and high-density barrels.

 

Al-Murshed pointed out that the company does not determine the prices of gas sold in the Kingdom. The relevant government agencies regulate the market and assess feedstock prices to ensures appropriate commercial returns on the company’s investments in gas production.

 

He noted that the main goal of issuing international bonds is to reset the yield on company bonds, in addition to expand and diversify the investor base, and improve liquidity in bond trading.

 

Here are the details of the interview:

 

Q: What is your comment on the company's financial results in Q2 2024 and the factors contributing to this?

 

A: Saudi Aramco continued to achieve strong results in the second quarter, as it reported a net income of more than SAR 109 billion, which represents 6.6% growth QoQ. In addition, free cash flows amounted to over SAR 71 billion.

 

There are various factors that contributed to these results, the most important of which was the improvement of crude oil prices globally compared to the first quarter, which reflects the expected growth in seasonal demand for crude oil and low levels in the global inventory. Of course, our very low production costs enhance our ability to benefit from these factors to maximize shareholders’ value across various markets.

 

Q: The company aims to raise $6 billion through issuing international bonds. Why borrow in light of the company’s strong financial position? In which projects specifically will the proceeds be used?

 

A: The main objective of this issuance is to reset the yield on our bonds, in addition to expanding and diversifying the investor base, and improving the level of bond trading liquidity. This comes after more than three years of absence from the global debt markets, as the last issuance of traditional bonds was in November 2020. Since then, the debt markets have witnessed a state of fluctuation and uncertainty, in which the conditions were not suitable for issuance.

 

Therefore, we opted to not borrow during that period as the strength of our financial position allowed us to do so. Once the market outlook was clear this year, we issued $6 billion worth of bonds last month.

 

The issue was more than 6x oversubscribed, and was very well priced, as the bonds did not charge any premium. Rather, unlike usual, investors accepted a negative issue premium, which contributed to pricing the proceeds of this issue at a lower level than the previous yield on our traded bonds. It is worth noting that the proceeds of these bonds’ issuance are not related to financing specific projects, but will support the company's business in general.

 

Q: After completing the secondary offering process, when will the new additional offering be, given the company’s plans to gradually offer 5%?

 

A: The decision whether or not to offer is up to the shareholder who made the decision to sell, who in this case is represented by the government of the Kingdom, and we certainly cannot speak on their behalf.

 

As it is known that the secondary offering came more than four and a half years after the initial public offering (IPO), and during this period the company demonstrated its ability to achieve high levels of profitability, sustainable and growing distributions, in addition to its ability to find and develop various opportunities for growth.

 

Q: Did the company’s decision to raise feedstock prices for industrial companies in the Kingdom impact Saudi Aramco?

 

A: The company does not determine the prices of gas sold in the Kingdom at all, as competent government agencies regulate the market and determine feedstock prices in a way that ensures appropriate commercial returns on the company’s investments in gas production.

 

It is worth noting that the Kingdom is one of the largest gas markets in the world, with a demand level exceeding 10 billion standard cubic feet per day. This high level of demand is expected to continue to rise. Considering this, Aramco has previously raised the target growth rate for gas production capacity by more than 60% by 2030 compared to production levels in 2021. We at Saudi Aramco believe that this strong and growing demand constitutes a real opportunity for the growth of the company’s business.

 

Q: What are your expectations for oil demand amid geopolitical tensions, high shipping prices and slowdown in China?

 

A: The data indicates that the global demand for oil witnessed a growth of about 1.1 million bpd, compared to the same period last year, to reach a historical level of 103.2 million bpd in the first half of this year. Experts forecast this growth to continue during the second half to reach new historical levels ranging between 104.6 and 106.2 million bpd, despite the expectations of a slowdown in GDP growth in Asia and the United States during the same period.

 

Whatever the factors and circumstances surrounding the global economy, we have strong grounds to believe that the world will need all energy sources in the medium- and long term, including oil and gas. Saudi Aramco is ready to take advantage of this continuous growth in the oil demand levels, as the cost of carbon intensity in our upstream segment is very low, and we have a surplus production capacity of up to 3 million bpd.

 

Q: What are the latest developments in your existing projects? Does the company intend to enter into new projects or acquisitions in the coming period?

 

A: All of our capital investments are progressing excellently according to our expansion plans. Crude oil projects continue to progress on track, as the first phase of Dammam field development project is expected to begin operation later this year, followed by projects to increase production from the Marjan and Berri fields in 2025, as well as Zuluf oil field in 2026.

 

Meanwhile, our gas expansion projects continue to progress as well, with the first phase of Jafurah production and Ras Tanajib plant expected to begin in 2025. We have also awarded contracts for the implementation of the third phase of the master gas network, which is expected to increase the network’s capacity in 2028 to transport more gas to many qualitative projects in the Kingdom.

 

As for the downstream segment, the company has completed its acquisition of a 40% ownership stake in Gas & Oil Pakistan Ltd. (GO) and has signed final agreements to purchase a 10% ownership stake in Horse Powertrain Ltd., which develops and markets more efficient and lower-emission solutions for internal combustion and hybrid powertrain technologies.

 

In terms of sustainability, Aramco, in partnership with the Public Investment Fund (PIF) and ACWA Power Co., announced signing agreements to purchase electrical energy, with the Saudi Power Procurement Co. (SPPC) for three new projects in the field of solar photovoltaic energy, with a total capacity of 5.5 megawatts. All of these projects aim to create real opportunities for the growth of the company's business and enhance its ability to create greater value for shareholders.