Saudi Aramco looking at China and India for joint ventures

Saudi Aramco, the world’s largest oil companies in the world, is exploring various opportunities with China’s state-owned Sinopec and holding talks with India’s Reliance on a possible joint venture to further diversify its downstream activities, company’s President and CEO Amin H Nasser said on Saturday.

“We have announced one JV in China and are currently working with number of opportunities with Sinopec. We are also exploring a good number of opportunities with other players in Asia – all for mainly highly integrated complexes with more than 50% liquid to chemical that would represent huge growth opportunities,” Nasser told reporters in an earnings call.

The investment will give Aramco a source for its crude and will help the company lower emissions as the crude is converted to chemicals rather than liquids to be used in the carbon-intensive transport sector, he said.

Nasser also said clarified that the company never stopped its discussions India’s Reliance Industries and was holding talks for a possible joint venture. “This is an ongoing process as these things take time to finalize but we are still in discussion with Reliance,” he added.

Looking East

Saudi Aramco has been eyeing China’s downstream sector for its investments and has decided to move forward with a 300,000 b/d oil refinery and petrochemical project in northeast China on March 10.

The company said it had taken the final investment decision to develop a liquids-to-chemicals complex under a joint venture with North Huajin Chemical Industries Group Corp. and Panjin Xincheng Industrial Group.

Though Saudi Aramco withdrew from the project in 2020, both sides started re-negotiations in H2 of 2021. The complex, estimated to cost around $10 billion and become operational in 2024, is coming up in in Panjin city.

Financial Performance

Announcing its annual financial results for 2021, Saudi Aramco reported that its net income has more than doubled year-on-year to $110 billion. Aramco declared a fourth quarter dividend of $18.8 billion, to be paid in the first quarter of 2022.

The Company also announced its growth strategy, which in its Upstream business includes continuing to raise crude oil Maximum Sustainable Capacity (MSC) to 13 million barrels per day (mmbpd) by 2027, and potentially increasing gas production by more than 50% by 2030.

In its downstream business, the Company plans to expand its liquids to chemicals capacity to up to 4 mmbpd. Aramco also intends to develop a significant hydrogen export capability and become a global leader in Carbon Capture and Storage (CCS).

In addition, the Company is targeting investment in renewable energy and nature-based solutions, as it pursues its ambition of achieving net-zero Scope 1 and Scope 2 greenhouse gas emissions across its wholly owned operated assets by 2050. This includes an aim to reach near-zero Upstream methane emissions by 2030.

In his comments, Amin Nasser said: “Our strong results are a testament to our financial discipline, flexibility through evolving market conditions and steadfast focus on our long-term growth strategy, which targets value growth for our shareholders. Although economic conditions have improved considerably, the outlook remains uncertain due to various macro-economic and geopolitical factors. But our investment plan aims to tap into rising long-term demand for a reliable, affordable and ever more secure and sustainable energy.”

Net Income Grows

Aramco’s net income increased by 124% to $110 billion in 2021, compared to $49 billion in 2020. The increase in net income reflects higher crude oil prices, stronger refining and chemicals margins, and the consolidation of SABIC’s full-year results.

Free cash flow* was $107.5 billion in 2021, compared to $49.1 billion in 2020. Aramco continues to prioritize a strong balance sheet and its gearing ratio at the end of 2021 was 14.2%, compared to 23.0% at the end of 2020.

The company recommended that $4 billion in retained earnings be capitalized and bonus shares be distributed to shareholders, subject to required Extraordinary General Assembly and regulatory approvals.

Under the recommendation, shareholders would be granted one bonus share for every ten shares owned. As a result, the total dividend for 2021 is $75 billion in cash, in addition to bonus shares. The Company aims to maintain a sustainable and progressive dividend, in line with its future prospects, underlying growth in free cash flow, and long-term value creation through investments in available opportunities.

Capital expenditure in 2021 was $31.9 billion, an increase of 18% from 2020, primarily driven by increased activities in relation to crude oil increments, Tanajib Gas plant and development drilling programs.

Aramco expects 2022 capital expenditure to be approximately $40 billion-50 billion, with further growth expected until around the middle of the decade. This is in line with the Company’s belief that substantial new investment is required to meet demand growth, against a broader decline in upstream investment across the industry globally.