Saudi Aramco increases spending on oil exploration

Saudi Aramco has announced it will increase spending on oil production to meet rising energy demand, while chief executive Amin Nasser has slammed "completely unrealistic" plans for the world to quickly move away from fossil fuels.

The world's largest oil exporter said years of underinvestment in the oil industry threatened global energy security while the company benefited from rising prices and reported its highest annual profit since its 2019 IPO.

Saudi Aramco reported Sunday that net income more than doubled to $110 billion in 2021, and the oil major kept its full-year cash dividend -- one of the largest in the world -- at $75 billion. Analysts had forecast net income of $109.7 billion, according to the company's average.

The state-backed company, which reported a profit of $49 billion last year, said the 124 percent increase was due to "higher crude oil prices, stronger refining and chemical margins and the consolidation of Sabic's full-year results." The company acquired a 70 percent stake in Sabic, the Saudi petrochemical company, in 2020.

Rising oil consumption, low inventories and declining idle production capacity meant supply and demand were in a tight balance even before Russia invaded Ukraine, which threatened to take millions of barrels of Russian crude off the market, Nasser said. As a result, significant investment is needed to halt global supply, which is declining by up to 7 percent annually.

"We're doing our part, but it's not enough. Other players must also do their part and increase their investments," he said.

Saudi Aramco is in the process of increasing its maximum production capacity from 12 million to 13 million barrels per day by 2027. Investments will reach $31.9 billion in 2021 and will increase to $40-50 billion in 2022, the company said.

The dividend included $18.8 billion for the fourth quarter, which is expected to be paid before the end of March. The payment is a major source of revenue for the Saudi government, which owns 98 percent of Saudi Aramco's shares after a small portion of the company's stock went public in December 2019.

The company also announced that it would capitalize $4 billion of retained earnings and distribute bonus shares to shareholders, one bonus share for every 10 shares owned.

Gearing, which Saudi Aramco defines as a measure of how leveraged its operations are, fell to 14.2 percent from 23 percent in December 2020 as the company redeemed some of its $107.5 billion in free cash flow used.

Saudi Aramco and its international peers, including Chevron, ExxonMobil and BP, have benefited from the global economic recovery and supply shortages that pushed oil prices above $100 a barrel for the first time in more than seven years.

Fears that a growing boycott of Russian oil could take up to 2.5 million barrels of crude and petroleum products off the market, and the unwillingness of Saudi Arabia and its allies in the Opec+ group to increase production to compensate, drove prices up further.

Saudi Aramco said average crude oil production in 2021 will be 9.2 million b/d as the company gradually replaces the production cut in 2020 when the coronavirus pandemic slumped demand.

The company released its annual results on the morning after the Saudi-led coalition in Yemen announced that Houthi rebels had overnight attacked several facilities in the kingdom with drones and ballistic missiles, including a Saudi Aramco terminal in the south and one of the company's LPG plants. According to the coalition, there was only minor damage and no injuries.

A 2019 attack on Saudi Aramco's facilities temporarily cut the country's oil production in half. Nasser said the company has contingency plans in place to ensure there is no disruption to supplies in the event of another major attack. "I don't really expect any problems when it comes to meeting our customers' requirements," he said.