Fitch Ratings has revised the outlook on the world’s largest oil producer, Saudi Aramco, to positive from stable, following a similar rating action on Saudi Arabia and has affirmed the Long-Term Foreign & Local Currency Issuer Default Ratings (IDR) at ‘A’.
According to the ratings agency, Aramco’s financial profile benefits from strong pre-dividend free cash flow (FCF) generation and conservative leverage. Its business profile is characterised by large scale production, vast reserves, low output costs and expansion into downstream and petrochemicals. Its upstream operations focus on a single country and, compared with global oil and gas majors, its operations are skewed towards crude oil production.
“We project that given high oil prices Saudi Aramco could switch back to the net cash position in the next two years and will remain less leveraged than its maininternational peers, such as Royal Dutch Shell plc, TotalEnergies SE,” Fitch noted.
Capex
Saudi Aramco’s annual capex is set to increase to 40 billion-50 billion in 2022, versus 32 billion in 2021, on the back of its efforts to increase oil production capacity by 1 million barrels of oil a day (MMbpd) to 13MMbpd by 2027 as well as other strategic initiatives, including gas production, liquids to chemicals production, and green projects.
Dividends
The oil producer has set a target of paying at least 75 billion in annual dividends. “We estimate that under our oil price assumptions Saudi Aramco’s capex and dividend payments should be broadly covered by operating cash flows. We assume that Saudi Aramco has the flexibility to reconsider its dividend commitment in case oil prices fall or capex is higher than we currently assume.”
Profitability
According to Fitch, in 2021, Saudi Aramco’s funds from operations (FFO) per barrel oil equivalent (BOE) increased to $33/BOE from $15/BOE in 2020 as average oil prices rose. In absolute terms, Saudi Aramco generated almost $150 billion in FFO, more than of that generated by any other oil company globally. “In 2022-2023, Saudi Aramco’s cash flow should continue to benefit from high oil prices, though we conservatively assume that those will moderate after that in line with our oil price deck.”
