Saudi Aramco Posts Record Quarterly Profit on Surging Oil Prices

Aramco’s soaring profit offers an example of how the Ukraine invasion and rising oil prices have boosted the fortunes of petrostates such as Saudi Arabia. With oil prices rising as high as $139 a barrel in recent months and consistently above $100, Saudi Arabia has seen its fastest economic growth in a decade.

In the wake of Russia’s invasion of Ukraine, Western countries including the U.S. put sanctions on Russian oil, leading to fears of less oil in the market and higher prices.

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, has rebuffed U.S. requests to pump more oil to help tame surging crude prices, instead sticking by an agreement with Russia to only marginally increase output. That pact allows for production increases of around 400,000 barrels a day each month, but it has done little to stem the rise in oil prices, and the Saudis have pumped less than their share, according to the International Energy Agency.

Soaring energy prices have showered western oil producers such as

Shell

PLC and

Exxon

Mobil Corp. with cash, despite write-downs from their withdrawal from Russia. The companies are largely using the cash to reduce debt, accelerate share buybacks and otherwise reward investors, rather than increase exploration and other capital spending.

For many members of OPEC and a coalition of Russia-led oil producers, known as OPEC+, high oil prices have been a windfall, providing a vital boost to their economies after years of slow growth due to relatively low prices, some OPEC delegates and analysts say.

Saudi Arabia’s gross domestic product in the first quarter expanded 9.6% from a year earlier, according to the kingdom’s statistics authority. London-based consulting firm Capital Economics estimates the Saudi economy will grow around 10% this year. That is far stronger than the 6.3% growth currently expected by most analysts, it said.

Though the kingdom is trying to diversify away from oil, Aramco remains the engine of its economy. The company pumped an average of 10.2 million barrels a day between January and March, the most of any company in the world.

Unlike independent producers such as

BP

PLC, Shell and Exxon, which are tempering their petroleum investments as they shift to renewable energy, Aramco is spending billions of dollars to up its oil production capacity from 12 million barrels a day to 13 million by 2027 and plans to hike its gas output by more than 50% by 2030.

Aramco is also looking to develop opportunities in refining and petrochemicals, known in the industry as the downstream sector, and in recent months bought a stake in a Polish refinery and said it would invest in a 300,000-barrel-a-day refining and petrochemicals complex in China.

“During the first quarter, our strategic downstream expansion progressed further in both Asia and Europe, and we continue to develop opportunities that complement our growth objectives,” Aramco Chief Executive

Amin Nasser

said in a statement.

The kingdom has often pushed back against calls for a rapid move away from fossil fuels, arguing recent price increases are result from a lack of investment in hydrocarbons.

Saudi Aramco’s first-quarter capital expenditure stood at $7.6 billion. The firm has previously set its full-year capital expenditure guidance at $40 to $50 billion, with further growth expected until around the middle of the decade.

Despite its free cash flow rising 68% to $30.6 billion, Aramco kept its quarterly dividend, a vital revenue source for the Saudi government, unchanged at $18.8 billion and approved the distribution of one bonus share for every 10 shares held in the company. That allowed the firm to reduce its gearing—a measure of debt as a percentage of equity—from 14% at the end of December to 8% at the end of March.

In March last year, Aramco’s gearing rose to 23%, above the company’s self-imposed cap of 15%, forcing Aramco to return to the debt market to meet its dividend commitment.

The Saudi government, with a stake of more than 94% in Aramco, has sought to monetize the country’s massive oil assets and use the proceeds to invest in industries outside of oil as part of Crown Prince

Mohammed bin Salman’s

plan to restructure the economy by 2030.

To help meet that goal, Prince Mohammed has tasked the Public Investment Fund to invest in companies and industries untethered to hydrocarbons. The government also transferred the $29.4 billion it raised from Aramco’s initial public offering on the Saudi stock exchange in 2019 to the PIF to deploy.

Earlier this year, the Saudi government said it transferred Aramco shares worth about $80 billion to the PIF as part of efforts to diversify the kingdom’s hydrocarbon-dependent economy.

Write to Summer Said at summer.said@wsj.com