Saudi Aramco Maintains its Massive Dividend After a 30% Jump in Net Income on Higher Oil Prices

By Adriaan Brits Tuesday, May 4, 2021

Saudi Aramco reported better-than-expected profit results for its Q1 earnings, with the net income in the oil business giant surging 30% compared to the same period last year. The latest business results from the company indicate a strong recovery in oil prices after a crash in 2020 amid the COVID-19 pandemic.

Three oil barrels with an upward trending arrow.

Massive Dividend Maintained

Saudi Aramco reported its net income climbed to $21.7 billion in the quarter, up from $16.6 billion in Q1 2020 earnings, and outshining analysts’ expectations of $17.24 billion. These better-than-expected business results came in despite reduced oil production in February and March as higher oil prices drove profits higher.

Aramco reported a free cash flow (FCF) of $18.3 billion in the quarter, more than $15 billion reported last year. The company also maintained its dividend and is set to pay out $18.8 billion in Q1 and Q2.

“The momentum provided by the global economic recovery has strengthened energy markets,” said Amin Nasser, president and CEO of the oil business.

He added that “some headwinds still remain,” but said: “Given the positive signs for energy demand in 2021, there are more reasons to be optimistic that better days are coming.“

The spike in profit indicates a significantly better environment in oil prices compared to the first quarter of 2020 when Aramco reported a 25% decline in net income after taking a heavy blow from the COVID-19 outbreak.

Oil business giants around the world have been grappling with uncertainty the entire last year, with the Saudi Arabian company describing 2020 as “the most challenging year” in its history.

Saudi Aramco has now returned to profitability thanks to the robust recovery in oil prices, with Brent crude prices doubling compared to the same period last year. Moreover, refining and chemical margins have also recovered some ground.

The company will try to leverage its balance sheet to handle the current uncertainty, with the oil company suggesting substantial asset sales over recent months. Saudi Arabia’s Crown Prince has announced in late April a 1% sale of Saudi Aramco to a “leading global energy company.”

Moreover, Aramco has been negotiating to raise capital through other asset sales, including the $12.4 billion sale of its pipeline business that could help provide funds to pay down debt. Last month, Aramco agreed to sell a 49% stake in its pipelines unit to the US consortium EIG Global Energy Partners.

“Our portfolio optimization program continues to identify value creation opportunities, such as the recent announcement of our landmark $12.4 billion pipeline infrastructure deal. We also expect Saudi Arabia’s newly-launched Shareek program to present growth opportunities, through incentives which encourage partnerships and investment,” Nasser added.

Saudi Arabia has introduced a new “Shareek” initiative, which will allow Saudi Aramco and other domestic business giants to bring investments to the kingdom’s $1.3 trillion private sector by 2030 by slashing dividends paid to the government. The goal of this plan is to help the country diversify its economy and decrease its dependence on higher oil prices.

Summary

World’s largest oil company Saudi Aramco reported a 30% surge in net income in the first quarter of 2021 to beat the analysts’ estimates. Oil prices have surged this year to help companies around the globe report a recovery in sales and profits.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

Related Articles