Analysts predict tripling of Saudi Aramco profit as upstream earnings increase

Bank of America predicts a net profit of $24 billion in the second quarter, up 16 percent from the previous three months. JPMorgan estimates $23.7 billion, while Alrajhi Capital is expecting Aramco to report $25.3 billion.

“Against a positively trending demand/price backdrop, we expect a robust quarterly net income print from Aramco,” JPMorgan analyst Christian Malek wrote in a report to investors.

All eyes will be on the size of Aramco’s dividend, which it maintained at $75 billion last year even as demand for crude and related products collapsed amid the COVID-19 pandemic.

Aramco had to turn to the debt market last year to help fund the dividend after its earnings plunged with the onset of the coronavirus pandemic, but oil prices have surged 40 percent in 2021 to around $70 a barrel as major economies reopen, and the rise in demand has enabled OPEC+ to ease output cuts they started early last year.

“Aramco is the most sustainable dividends payer and didn’t cut the dividends in 2020, but we don’t expect growth in dividends since Aramco has not cut its dividends in the past when oil prices were lower,” Mazen Al-Sudairi, head of research at Al-Rajhi Capital, told Arab News.

The Riyadh-based firm’s dividend is a crucial source of funding for the Saudi government, which is trying to narrow a budget deficit that widened to 12 percent of GDP last year.

The world’s biggest energy company’s annual dividend of $75 billion is already the world’s biggest, but the oil producer may have to raise it to follow peers, according to BofA.

“Aramco should at least revisit its earlier plans to progressively increase the dividend and potentially distribute any additional windfall cash flows” to shareholders,” BofA analysts led by Karen Kostanian, said in a research note. “Especially given that higher oil prices and OPEC+ driven production increases should support a significant free cash flow increase over the next couple of years.”

Aramco’s indicated dividend yield is roughly 4 percent, while BP, Chevron and Exxon Mobil Corp. all pay above 5 percent.

Crude production will remain flat at 8.55 million bpd in the second quarter and that coupled with higher oil prices will contribute to higher earnings in the upstream segment, Morgan Stanley analysts wrote in a research note.

The bank also expects a slight improvement in Aramco’s downstream earnings in the second quarter, driven by stronger refining margins.

BofA forecasts that free cash flow will climb to $95 billion this year and, at an assumed oil price of $75 a barrel, to $120 billion in 2022, Bloomberg reported.