Release Date: November 05, 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) reported a robust Q3 net income of $27.6 billion, showcasing resilience despite a 7.5% drop in oil prices.
- The company declared $20.3 billion in base dividends and $10.8 billion in performance-linked dividends, reflecting a strong commitment to shareholder returns.
- Saudi Arabian Oil Co (SAU:2222) maintains a strong balance sheet with a gearing of 1.9%, the lowest among its peers.
- The company is progressing well with its upstream projects, including the Dammam development and the Jafurah gas project, which are on track to enhance production capacity.
- Saudi Arabian Oil Co (SAU:2222) is advancing its renewable energy initiatives, having closed three solar PV developments with a combined capacity of 5.5 gigawatts.
Negative Points
- The downstream segment reported a negative EBIT of $1.8 billion due to continued weakness in refining and chemical margins.
- Despite strong financial performance, the company faces challenges with cost inflation, particularly in the upstream sector.
- Saudi Arabian Oil Co (SAU:2222) has $90 billion in assets under construction, which are not yet generating returns, impacting its return on average capital employed (Roache).
- The company is experiencing low margins globally in the downstream sector, affecting overall profitability.
- There is uncertainty regarding the future of certain projects, such as the liquids to chemicals strategy, which may face delays or cancellations.
Q & A Highlights
Q: What drove the increase in total hydrocarbon production to 12.7 million barrels of oil equivalent, and what are the plans to address ongoing downstream losses?
A: The increase in hydrocarbon production is primarily due to seasonal gas production, which is a trend observed annually in the third quarter. Regarding downstream losses, these are largely due to global low margins in refining and chemicals. The company is working on transforming downstream assets and exploring improvement opportunities, although the sector is currently experiencing low margins worldwide.
Q: Can you provide insights on the CapEx outlook for 2025 and the company's LNG ambitions?
A: CapEx is expected to peak mid-decade, with 2025 anticipated to be higher than 2024. The company is focused on creating an LNG business tied to trading, recognizing that most value lies in offtake. Current projects open doors for future offtake opportunities, and the company is ramping up LNG trading capabilities to capture value.
Q: Are there any signs of recovery in the downstream sector, and what is the strategy for renewable power?
A: There are initial signs of improvement in diesel and jet fuel, but it's too early to determine a clear recovery. In renewables, the company is focusing on projects in Saudi Arabia, aiming for an equity capacity of 12 gigawatts by 2030. These projects will help integrate with existing operations and contribute to the company's net-zero ambitions.
Q: What is the outlook for dividends given the current financial situation, and can you update on SABIC synergies?
A: The base dividend is intended to be sustainable and progressive, while performance-linked dividends are formula-based. The company will announce next year's dividends in March. SABIC synergies are on track, with expected annual recurring synergies of $3 to $4 billion by 2025, primarily from procurement, sales, and marketing efficiencies.
Q: How is the company managing cost inflation and what is the rationale behind the cancellation of certain projects?
A: Cost inflation in Saudi Arabia is lower than globally, aided by a high local content program. The company continuously evaluates opportunities to create shareholder value, both domestically and internationally. Decisions to postpone or cancel projects are based on strategic alignment and value creation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
