Despite all challenges such as oil price volatility, the uncertainty caused due to the ongoing Russia-Ukraine crisis and the economic slowdown as a result of the pandemic, Saudi Aramco remains in the top energy league performers.

The oil giant’s performance is evident from its 2021 financial results. Aramco’s low-cost base and flexible operational structure allowed the company to swiftly and successfully navigate the 2020 period to deliver the stellar 2021 results, aided by higher oil prices.

Operating income was $205.6 billion in 2021, well above the $102.1 billion in 2020, and $179.9 billion in the pre-pandemic 2019. Net income was $110 billion in 2021, far higher than many analysts’ estimates.

These numbers bode well for the company on several fronts, especially in raising further funds in the international capital markets, which has been well received. The effort is expected to gain more traction if Aramco decides to borrow more this year at competitive lending rates, which both Aramco and the Saudi sovereign still enjoy. The oil behemoth has successfully obtained a mix of traditional and sukuk borrowing with those listed on the London Stock Exchange, asserting a vote of confidence in Aramco’s ability to list such securities in leading stock exchanges. 

Aramco also set new benchmarks in Islamic borrowing and raised $6 billion sukuks in the second quarter of 2021, the world’s largest order book of US-dollar denominated sukuks.

The company’s gearing ratio — the increase of the degree to which Aramco’s operations are financed by debt — fell to 14.2 percent in 2021 from 23 percent in the previous year, again something those potential lenders will welcome compared with other capital scarce national energy companies. The decrease resulted from higher operating cash flows, reflecting stronger oil prices, improved refining and chemicals margins, and consolidation of SABIC’s results.

Aramco’s free cash flow, another highly followed financial ratio for lenders, is one of the strongest compared to other energy peers, reaching $ 107.5 billion in 2021 compared with $ 49.1 billion in 2020. The position helps Aramco evaluate the cash available for financing activities, including its much-anticipated dividend payments since its IPO in 2019 and dispelling initial doubts that its dividend pay-out policy will be maintained in the face of falling oil prices. Aramco’s dividend yield of 3.43 percent compared with the industry average of 3.15 percent again puts it in a different league. The state-run company pledged to maintain its current $75 billion annual payment even during the COVID hit 2020 period, bolstering the confidence of existing and potential investors. The Aramco board has recommended $4 billion in retained earnings to be capitalized and bonus shares distributed to shareholders, reflecting strong 2021 earnings performance.

The company has been reassessing its operating model, and one of these is divesting part of its asset infrastructure while focusing on core activities. This new business model approach has contributed to Aramco’s financial results, such as completing an infrastructure $ 12.4 billion asset sale in June 2021 relating to a 25-year lease and leaseback agreement with global financial partners from the US, China, and Saudi Arabia for its stabilized crude oil pipelines network. The company also closed another $15.5 billion gas pipeline deal with international and domestic investor consortiums, which acquired a 49 percent stake in Aramco Gas Pipelines Co. 

In all these transactions, Aramco retains full ownership and operational control, and the agreements do not impose any restrictions on Aramco’s production volumes by giving Aramco the operational flexibility to produce oil in compliance with OPEC+  agreement quotas, which has been an important market steadying force during the most recent price volatility, driven mainly by hedge fund geopolitical speculation.

Aramco’s latest financial results are also backed by some of the largest global energy reserves estimated at 255 billion barrels, enabling the Saudi oil company to produce around 9.2 million bpd in 2021 and 2020, compared with 9.4 million bpd in 2019. The company maintains a maximum sustainable capacity of 12 million bpd — the highest amongst OPEC producers — with a planned increase to 13 million bpd by 2027. 

This vantage point positions Saudi Arabia as the leading world oil supplier for many years, making it the unofficial oil central banker of the world. It is no wonder that governments worldwide are treading a path to Riyadh to urge the Kingdom to increase oil production during the current oil supply uncertainties due to the Russian-Ukraine crisis.

But Aramco is not standing still to rely on oil sales alone, knowing that future calls for fossil emission controls are bound to affect its business and profitability, leading to stranded resources, unless it can diversify its energy mix. The oil giant has been actively diversifying its energy sales; it operates a strategically integrated global downstream business in refining and petrochemical manufacturing, adding new and cleaner blue and green hydrogen energy capacity. 

Today Aramco boasts of a gross refining capacity of around 6.5 million bpd and 53.1 million tons per year in net chemical production capacity. Its chemical business now operates in 50 countries following the SABIC acquisition.

Local and international investors see the current and long-term value in investing in the company when there are scarcer opportunities for less risky investment outlets, especially under heightened geopolitical tensions. The company’s global energy pre-eminence has been reflected on the Saudi stock exchange, with market capitalization closing at $1,877 trillion in 2021 and currently hovering at $2.28 trillion. It’s vying to compete with Apple to become the world’s highest capitalized company and perhaps even surpass it. 

The state-run oil major has also committed to investing long-term by building on its low-cost and low-carbon intensity performance to achieve net-zero greenhouse emissions by 2050 with new energy supplies in blue and green hydrogen and committing capital expenditure in all these areas. The company has also expanded gas explorations, amounting to $31.9 billion in 2021 compared with $26.2 billion in 2020. Aramco said it aimed to boost its capital expenditure to $40-$50 billion in 2022, with further growth expected until around the middle of the decade, again a sign of its confidence to be the world’s premier energy supplier on a sustained basis.

With oil prices well above the 2021 average levels and reaching between $85 per barrel and $130 per barrel in Q1 2022, the next quarterly 2022 Aramco financials will break new financial records, making Aramco one of the most valuable energy companies that have overcome the COVID-19 2020 slowdown, surpassing the previous highs of 2019. 

The announced transfer of 4 percent of Aramco shares to the Public Investment Fund in 2022 will not affect the company’s operations, strategy, dividend policy, and governance, with the state remaining the largest shareholder at 94 percent of Aramco shares after the transfer. The company sure makes a compelling case study for rising in the time of crisis.

• Dr. Mohamed Ramady is a former senior banker and Professor of Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran.