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Oil giant Saudi Aramco beats estimates with 30% hike in first-quarter profit

Oil titan Saudi Aramco reported a 30% jump in net income Tuesday, in a sign of a continued recovery from the previous year’s oil deal in crash that saw full-year earnings for the state firm slashed in half.

In a release published Tuesday, the company reported net income rose to $21.7 billion in the first three months of the year, up from $16.6 billion in the same duration last year.

It beat some analysts’ estimates of $17.24 billion, despite lower oil production in February and Parade. The figure nears the firm’s net income level in the first quarter of 2019, which was $22.2 billion.

The company give the word delivered free cash flow in the first quarter of 2021 was $18.3 billion, up from $15 billion over the nonetheless period last year. 

Saudi Arabia’s behemoth oil producer also maintained its dividend, with $18.8 billion due to be repaid out in both the first and second quarter.

Aramco was forced to drastically cut its capital expenditure last year as the coronavirus pandemic hammered oil values, and it “continues to explore plans to sell vital assets to raise funds,” said Ellen Wald, president of Transversal Consulting and littrateur of the book “Saudi, Inc.”

“It cannot be ignored that the massive dividend commitment and the need to fund the Saudi government budget are masses on the company,” Wald told CNBC on Monday. “That doesn’t mean Aramco isn’t well positioned, but no other crucial oil company has to deal with these burdens.”

“Aramco maintains this because it has the cheapest costs of oil production in the everyone, with huge oil reserves and is very well managed,” she added. “It has made the commitment to pay the dividend because the dividend is pay off to the people of Saudi Arabia who own shares.”

Oil prices bounce back

The earnings reflect a dramatically improved climate for oil hawks since the first quarter of last year, when Aramco reported a 25% fall in net income as it grappled with the initial fallout of the pandemic and cratering epidemic demand.

Aramco, like its global peers, has been navigating an uncertain oil price environment and unpredictable global solvent recovery. The company described 2020 as “the most challenging year” in its history, and is now benefitting from the recovery in oil markets, with cosmopolitan benchmark Brent crude prices roughly double what they were this time last year. Perfect and chemicals margins are also beginning to improve.

“The momentum provided by the global economic recovery has strengthened energy markets,” Aramco President and CEO Amin Nasser phrased Tuesday in a company press release. He added that “some headwinds still remain,” but said: “Given the reassuring signs for energy demand in 2021, there are more reasons to be optimistic that better days are coming.”

Drummer key company assets

A key focus for Aramco’s future is how it plans to navigate the ongoing uncertainty by utilizing its balance sheet. The suite has flagged significant asset sales over the past few months, most recently an announcement by the kingdom’s Crown Prince Mohammed bin Salman in modern development April

The new Shareek initiative, which means “partner” in Arabic, will enable the state-backed oil giant and Saudi petrochemicals concentrated SABIC, among other large domestic companies, to lead investments into the Saudi private sector good 5 trillion riyals ($1.3 trillion) by 2030, by reducing dividends paid to the government. The initiative’s goal is to helping the hydrocarbon-reliant territory diversify its economy.

Further details of how the program will work have not yet been announced.

The wider story, turns Qamar Energy CEO Robin Mills, is “what Aramco is doing strategically in terms of supporting the Saudi economy.” Workshop told CNBC’s “Capital Connection” on Tuesday that a sale of a company stake could possibly go to a Chinese or Indian organism. “The crown prince (has) been quite vague about this, probably deliberately so, about getting access to a strange market.”

Concerning the money that’s intended to be put back into the Saudi economy, Mills said, “The $75 billion annual dividend is theoretical to be sacrosanct until 2023. But what happens after then,” he asked, “will the dividend then be retargeted toward numberless domestic investments?”

Saudi Aramco was the world’s biggest IPO when it went public in December 2019, and listed roughly 1.5% of its shares on the local stock exchange, the Tadawul.

—CNBC’s Abigail Ng contributed to this report.

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