Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Saudi Arabian Oil Co (SAU:2222, Financial) continues to deliver strong operational and financial performance, with record global oil demand reaching 103.2 million barrels per day in the first half of 2024.
- The company is making significant progress in its upstream and downstream operations, including major projects in Marjan, Berri, and Zuluf, and expanding its gas production by more than 60% by 2030.
- Saudi Arabian Oil Co (SAU:2222) is advancing its new energies initiatives, including renewable capacity building, lower carbon hydrogen business, and carbon capture and storage (CCS).
- The company has successfully completed two major transactions in the equity and debt capital markets, enhancing trading liquidity and broadening its investor base.
- The Board has declared a total dividend of $31.1 billion for August, with expectations to declare $124 billion in total base and performance-linked dividends for the full year 2024.
Negative Points
- Downstream EBIT was down at negative $0.3 billion, mainly due to weaker refining margins.
- The company faces significant challenges in the hydrogen market, including high production and transportation costs, infrastructure development, and unclear policies.
- There is an increase in selling and general expenses, as well as purchasing costs, impacting the company's operating costs.
- The effective tax rate has shown variability, influenced by different tax brackets for various business units and specific transactions.
- The company has temporarily suspended a number of jack-up rig contracts, indicating potential adjustments in upstream investment and operational activities.
Q & A Highlights
Q: Will the CapEx for Phase II of Jafurah change your overall guidance for CapEx in the medium term? What is the long-term target regarding deleverage and gearing?
A: The CapEx for Phase II of Jafurah is already included in our planned capital program and should not impact our guidance. Regarding gearing, we do not have a specific target but manage it to optimize our weighted average cost of capital and maintain balance sheet strength across oil price cycles. (Amin Nasser, CEO; Ziad Al Murshed, CFO)
Q: When could Saudi Arabia become an exporter of natural gas, and what is the best route for exporting this gas?
A: We are focusing on growing gas production to meet domestic demand and industrial growth. Exporting gas will primarily be in the form of blue hydrogen, with LNG also being considered depending on future gas availability. (Amin Nasser, CEO)
Q: Can you provide an update on the CapEx guidance for the full year and your ambitions for the LNG business?
A: The CapEx guidance remains $48 billion to $58 billion, and we will provide an update in Q3. We have significant ambitions for growing our LNG portfolio through offtake agreements and equity investments. (Amin Nasser, CEO)
Q: What is the broader expansion strategy in retail, and how should we think about the balance sheet and deleveraging?
A: Our retail strategy targets high-growth markets to expand our refined products and Valvoline-branded lubricants. Regarding the balance sheet, we prioritize growth over additional distributions, with deleveraging being a lower priority. (Amin Nasser, CEO; Ziad Al Murshed, CFO)
Q: What are the reasons behind the increase in operating costs and the rationale for purchasing fuel oil?
A: Operating costs remain stable with minor impacts from increased freight rates. The purchase of fuel oil is to meet seasonal utility requirements, and we sometimes import different quality fuel oils for specific needs. (Peter Hutton, Head of IR; Amin Nasser, CEO)
Q: What are your views on refining margins and investment opportunities, and can you comment on the current rig operations?
A: We expect refining margins to remain healthy over the coming decade. Our investments focus on highly integrated refineries with high liquid-to-chemical conversion. Rig operations are growing, mainly driven by gas projects, with around 300 rigs expected by year-end. (Amin Nasser, CEO)
Q: What are the prospects for blue hydrogen growth, and any key learnings from the Jafurah project?
A: We aim to produce up to 11 million tonnes of blue ammonia by 2030. Challenges remain, but we are positioning ourselves for future demand. The Jafurah project is progressing well, with significant learnings from Phase 1 helping to reduce costs and improve efficiency. (Amin Nasser, CEO)
Q: Can you expand on the near-term trends in oil demand and explain the lower effective tax rate in Q2?
A: We remain positive about global oil demand, with strong demand in China and the U.S. refining sector running at high capacity. The lower effective tax rate in Q2 is due to the mix of business units and specific transactions taxed at different rates. (Amin Nasser, CEO; Ziad Al Murshed, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
