Saudi Aramco Posts Record Quarterly Profit on Surging Oil Prices

Saudi Arabian Oil Co., known as Aramco, said its quarterly profit swelled to $39.5 billion in the quarter, a period during which Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, continued to rebuff 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.

The agreement with Russia 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.

Western countries including the U.S. have responded to Russia’s invasion of Ukraine by sanctioning exports of Russian oil, leading to fears of less oil in the market and higher prices. Some of Europe’s biggest economies are scrambling to find new sources of natural gas to replace Russian fuel on which they remain highly dependent.

The result has been a boon for traditional fossil-fuel producers in the Middle East. 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.

Last week, Saudi Aramco overtook

Apple Inc.

as the world’s most valuable company, with its market value rising to $2.4 trillion.

Soaring energy prices have also showered Western oil producers such as

Shell

PLC and

Exxon

Mobil Corp. with cash. But 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. Some have also suffered multibillion-dollar write-downs from their withdrawal from Russia.

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.

Though the kingdom is trying to diversify away from oil, Aramco remains the engine of the Saudi 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.

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 increase 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. In recent months it 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.

Other Middle East energy producers are profiting from the energy-price boom.

Qatar, one of the world’s biggest natural-gas producers, is in talks to supply Germany, France and other European countries with long-term supplies of liquefied natural gas. In Iraq, one of the world’s biggest oil producers, officials say a windfall of more than $20 billion in oil revenues is putting the country on its strongest financial footing in years. Even Iran, where U.S. sanctions have crippled the oil industry, has ramped up exports in recent months.

In Saudi Arabia, 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.

Saudi Arabia recorded a budget surplus equivalent to $15.3 billion for the first three months of 2022, the finance ministry said Sunday, bolstered by a 58% increase in oil revenues compared with the same period last year. It is the biggest surplus since the government began announcing budget figures on a quarterly basis six years ago.

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 billion 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.

—Ghassan Adnan and Stephen Kalin contributed to this article.

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