Welcome to the Saudi Aramco's first quarter 2024 results call. We will be holding a question and answer session following the presentation. If you'd like to ask a question, please press star followed by one on your telephone keypad at any time. I shall now hand over to Mr. Peter Hutton to begin.
Hello, and welcome to this audio webcast for Saudi Aramco's first quarter 2024 results. I'm Peter Hutton, Head of Investor Relations at Aramco, and it gives me great pleasure to be joined today by Ziad Al-Murshed, Executive Vice President and CFO. Our webcast today will comprise a presentation followed by a question and answer session, and we anticipate the entire call lasting up to an hour. I'd like to remind you that this webcast and conference call are being recorded and also draw your attention to this cautionary statement. Please also refer to our regulatory filings and website for more details. With that, I will hand over the call to Ziad.
Thank you, Peter, and welcome everyone. It's always a pleasure to share with you the details of our quarterly performance and our progress in delivering our strategy. I am pleased that the company continues to deliver strong performance. This success is driven by both the quality of our portfolio and the commitment of our employees, to whom I convey sincere thanks and appreciation on behalf of the company's leadership. Now, let me begin by walking you through our Q1 performance. Net income was $27.3 billion, with free cash flow of $22.8 billion. Our balance sheet continues to be robust, with -3.8% gearing at the end of March. This financial strength allowed us to comfortably deliver on our record capital program while also increasing returns to our shareholders.
On the operations side, we continued smooth operations, high reliability, and are on track on the execution of our growth strategy. This includes making further progress enhancing our upstream oil and gas capabilities. Meanwhile, in downstream, we continued to implement our integration plans and expand our international footprint in attractive markets. We also advanced our energy transition strategy with further developments in solar. Our dividend distribution framework is clear and is designed to be resilient on the downside, while also sharing the upside, and is underpinned by a strong track record of delivery. In 2024, we expect to distribute a significant $124.3 billion in total dividends, which, as you know, is a combination of base dividends and performance-linked dividends.
This is an increase of $26.5 billion from our record 2023 distributions, which were already a considerable year-on-year uplift of 27% over what was already record distributions. Dividend payments are, of course, announced quarterly and subject to board's approval. In the first quarter, we paid dividends of $31.1 billion. This includes the base dividend of $20.3 billion, which was 4% higher than the previous quarter, and the third payment of performance-linked dividends of our combined 2022 and 2023 results, being $10.8 billion, which was an increase by 9% over each of the previous two quarters. For Q1, the board again declared another $20.3 billion of base dividends and $10.8 billion of performance-linked dividends payable in May, a significant year-on-year increase of nearly 60%.
We remain confident in our forecasts for mid- and long-term demand growth. Demand in the first quarter was up 2% year-on-year and is at an all-time high. Inventories are at five-year lows despite increases in supply. I will now turn to our progress in delivering our strategy. Starting with upstream, we are on track with our Berri, Marjan, and Zuluf crude oil projects coming online as planned in 2025 and 2026. These projects are among the world leaders in terms of scale and cost. In gas, we made further progress on delivering on our production growth target and have recently increased this growth target to more than 60% by 2030 over 2021 levels. Specifically, this progress is in two main areas.
First, in Q1, we announced an increase in the proven raw gas reserves of Jafurah by more than 15 trillion cubic feet and over 2 billion barrels of associated liquids. Second, we awarded engineering, procurement, and construction contracts for our Fadhili Gas Plant expansion, which will increase capacity by 1.5 billion standard cubic feet per day, taking the plant's total processing capacity to 4 billion standard cubic feet per day by 2027. We also just completed the acquisition of a minority stake in MidOcean Energy, which will give us exposure to select LNG projects globally. In downstream, we continue to focus on creating offtake security and conversion of liquids into chemicals, which also allows us to capture incremental value further down the hydrocarbon value chain.
In Q1, 51% of our crude oil production was utilized by our downstream system, up by six percentage points year-on-year, and an increase of four percentage points from 2023 levels. Construction commenced at the SABIC Fujian Petrochemical Complex in China, with an expected ethylene capacity of up to 1.8 million tons per annum, expected to come on stream in 2027. And in further support of our high-value liquids-to-chemicals strategy in China, we also signed an MOU two weeks ago for the potential acquisition of 10% stake in Hengli Petrochemical, which owns and operates a 400,000 barrel per day refinery and integrated chemicals complex. We also completed the acquisition of a 100% equity stake in Chilean fuels and lubricants retailer, Esmax, which secures a short position in fuels for our long position in Motiva in North America.
This expansion into the high-growth South American market will also create valuable opportunities for our Valvoline lubricants business. In our new energies business, momentum continues with the Sudair Solar PV Plant, reaching full operating capacity of 1.5 gigawatts. Overall, we are pleased with the progress we are making on our strategy execution. Let me now turn to our key Q1 operational and financial highlights. Upstream EBIT was solid at $54.8 billion in Q1, with production volumes lower by 3.1%, partially offset by a 2.5% increase in realized oil prices. Downstream EBIT was down at $1.2 billion, mainly as a result of refining margins decreasing year-on-year, although still healthy, and chemicals margins remaining low, albeit stable.
Our capital investments totaled $11.7 billion, of which organic CapEx was $10.8 billion, which is an increase by 24% year-on-year. Our full-year capital investment guidance remains unchanged at $48 billion-$58 billion. Free cash flow was $22.8 billion, and the balance sheet remains strong, with gearing of -3.8% at the end of March. ROACE was 21.7% over the rolling four quarters to Q1 2024. When comparing to the previous year, it is important to note that the higher ROACE in Q1 of 2023 benefited from higher prices and volumes from three quarters of 2022. It is also important to highlight that this ROACE reflects an impact from our significant capital investment program, with assets under construction increasing capital employed that is not yet operational to generate returns.
Zooming in on dividends, Aramco offers industry-leading distributions backed by our robust earnings and balance sheet strength. Our distribution framework is clear and provides comfort on the downside through a base dividend that we have demonstrated to be sustainable and progressive, and shares the upside through a performance-linked dividend. With that, in 2023, we increased distributions by 30% or $22.8 billion, to a total payout of $97.8 billion. This year, subject to the board's approval, of course, we intend to declare a further increase of 27%, which is an additional $26.5 billion of distributions, bringing the total anticipated payouts to $124.3 billion in 2024.
So this is what we mean when we talk about our ability to deliver attractive growth for our shareholders in our major capital program and high returns to shareholders through our dividend structure. Now, before we move to Q&A, I want to leave you with one final point. With the world's rising need for affordable, reliable, and more sustainable energy, we remain very confident in our ability to continue to create shareholder value. We continue to use our sustainable competitive advantages and our strong financial position to execute significant growth attractive for our shareholders. We believe Aramco provides a unique proposition given our capacity to deliver both growth and value. With that, Peter and I are pleased to take your questions.
Thank you. To ask a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star followed by two. When asking a question, please ensure you're unmuted locally. I shall now hand back over to Mr. Hutton for the Q&A session.
Thank you, Charlie. The first question comes from Mazen Al-Sudairi at Al Rajhi Capital. Go ahead, Mazen.
Thank you. Congratulations, Mr. Ziad Al-Murshed, for the result. I have a question, two question. The first question is about the upstream. Regarding the proven reserve of gas, about 15 trillion, how long it will take till it is commercialized? How many years or time period it will take? The second question, if you could shed light about the expansion with the SABIC and Fujian Petrochemical Complex. When might gonna start? About the acquisition, 10% stake in Hengli Petrochemical. If you could shed some light about it. Thanks a lot.
Mazen, on the upstream increase in reserves for Jafurah, the 15 trillion cubic feet, that also comes, by the way, a reminder with 2 billion stock tank barrels of condensate. That's part of the Jafurah unconventional, so the monetization of that will be through the production which we've shown you, which we've communicated earlier on Jafurah. On SABIC Fujian, this is expected to be on stream by 2027. This is through SABIC, of course. On your last question, you were referring to 10% in which investment exactly?
Well, was mentioned about Hengli, about the stake, 10% in Hengli. Yeah.
Okay. Yes, this is a continuation of our strategy in China, where we're taking relatively low or minority stakes in highly integrated refining and petrochemical complexes in order to not only place our crude oil, but convert a high conversion rate of that into in of the liquids into chemicals. Hengli itself is a 400 MBD, 400,000 barrels refinery, highly integrated with the world-scale petrochemical facilities in China. The exact, you know, close of the deal is still and other details are still under negotiation, but it has a conversion rate well over 50%. This is similar to the other investments that you've seen us execute and close in China.
Many thanks.
Thank you, Mazen. The next question comes from Michele Della Vigna of Goldman Sachs. Go ahead, Michele.
Thank you very much, Peter and Ziad, and congratulations on another very strong quarter. Two questions, if I may. The first one refers to the Jafurah field that is, you know, the gift that keeps on giving in terms of reserves. I was wondering if perhaps you could shed a little bit of light on what you think are the economics of the field in terms, especially of, cost per MCF. And secondly, when you think that Saudi could be in a position where not only it satisfies all of the domestic growth, but also perhaps is ready to export some of these volumes and, thinking about your recent entry into LNG, how that can create a, a global value chain for you in addition to the existing businesses. Secondly, you're clearly demonstrating very strong capital discipline, the choice to delay the Safaniya development.
We've also seen news of Marjan and Zuluf perhaps being slowed down. I was wondering if, if you could make any comment on that. Thank you very much.
Michele, sorry, could you repeat the last question?
Of course, of course. We've seen some news that perhaps Marjan and Zuluf field also may be developed a little bit more slowly than initially planned, after the decision of delaying Safaniya in the context of the strong capital discipline, and I was wondering if you had any comments on that. Thank you.
Thanks, Michele.
Michele, thank you for the questions. On the Jafurah field economics, we do not disclose specifically $ per MCF economics, but what I can tell you is it is advantaged versus Henry Hub. On export optionality, as we've said before, we're prioritizing, to the extent that domestic demand is met and there are volumes available for export, we are prioritizing blue hydrogen, blue ammonia over that. But then again, that depends on you know offtake availability, which we continue to work on. So that's always an option. That's our first priority and, you know, of course, if that doesn't happen, then to the extent that there are volumes available for export, then LNG is an option.
On your third question, Marjan and Zuluf developments are going per plan. We are not slowing down field development, and everything is progressing very well and per plan.
Thank you very much.
Thanks, Michele. The next question is from Martijn Rats at Morgan Stanley. Go ahead, Martijn.
Yeah. Hi. Hello. I've got two as well, if I may. I wanted to ask you about jackups. On the last call, there was a comment about reduced need for offshore jackups, but offset by growth in jackup requirement for gas. Keeping sort of the overall jackup demand sort of broadly stable, I was wondering if that comment is still sort of valid today. And then secondly, I was intrigued by your comment about a large amount of unproductive capital weighing on the return on capital calculation. I was wondering if you could sort of give an order of magnitude of how big the impact is, or perhaps the total sum of unproductive capital in the company at the moment.
Thank you, Martin, for the questions. On your first question, the answer is, the simple answer is yes, that is still valid. What Amin explained the last time continues to, we are increasing our activities in gas, so that statement is still valid. And on capital, what we're referring to is a massive growth CapEx that you've seen last year, the year before, and we've guided this year. That goes into our ROACE calculations as capital employed, but as you know, these are projects that take quite a few years to bring online. And so they're not contributing to the numerator of ROACE, the revenues, the returns.
You know, you can roughly guesstimate that from, you know, the size of our capital program and the amount of time that this takes to bring it. I don't have a specific number for you today, but that's the idea I was referring to in the prepared remarks.
That's clear. Thank you.
Thank you, Martin. The next question is from Henri Patricot at UBS.
Yes, thank you. So we have two questions, please. The first one coming back on the comments you made about oil demand. You mentioned that you're still confident about the outlook and oil demand up 2% year-on-year in the first quarter. I mean, are you seeing any signs that this is maybe a bit weaker in the second quarter? We've seen some signs that may be the case, such as the weaker refining margins. Any comments around that demand development recently? And then secondly, you mentioned today that you're increasing your allocation to venture capital. You're looking at $7.5 billion.
Overall, I was wondering if you could give us a sense of, you know, the timeline that you're thinking of to deploy that amount of capital and what type of project ventures you're looking into. Thank you.
Thank you, Henri. On your first question on oil demand, we're seeing. Let me tie it first to economic growth, because that's the main driver. So we're seeing the global economy remaining resilient. Oil demand remains healthy. The growth year-on-year is the 2% I was referring to, is about 1.8 million barrels per day in Q1. In the U.S., you know, the economy is expected to post a 3.1% GDP growth in the first quarter. That was a big driver. In the Eurozone, it's a bit of a soft economic growth with, you know, barely positive, about 0.2% GDP growth assumed for Q1.
China, on the other hand, 5.3% GDP expected growth in Q1 surprised a bit to the upside. China registered a 0.6, so about 600,000 barrels per day, year-on-year demand growth in Q1, mainly as a recovery in travel. So demand in China reached about 16.6 million barrels per day, during Q1, from 16 million in Q1 of 2023. Fourth quarter, the previous quarter, fourth quarter of 2023, demand in China was a bit higher at 16.9 million barrels per day, but that's due to seasonality.
In India, nearly 7% GDP growth, year-on-year, resulted in demand growth by 200,000 barrels per day, year-on-year in Q1, reaching 5.4 million barrels per day. Again, driven by transportation fuels. Now, this is, as far as India is concerned, we're in the midst of an election year. Consumer incentives are expected to increase demand further. Q1 2024 figures in India, 5.4 million, was also stronger than the fourth quarter of 2023 by also by 200,000 barrels per day.
If you look at forecasts out there, S&P Global, for example, is in its latest report is forecasting demand to average 104.4 million barrels per day, which is 1.7 million barrels per day higher compared to the 2023 average. And we see inventories at five-year lows, despite increases in supply from some non-OPEC countries. We see jet fuel and kerosene projected to see continued growth in 2024, reaching 7.6 million barrels compared to 7.2 in 2023. So overall, when you look at the supply and demand picture, we're seeing tight markets out there. As far as your second question on increasing the allocation to venture capital, yes, we've increased that.
We don't have a specific timeline. As you can appreciate, it depends on the opportunities out there. So we focus on the quality of the investments over the speed of deployment. Now, this is a significant increase that we've had in total investment allocations from $3 billion to $7 billion. This is in several funds. It enables the development of disruptive new technologies. It also creates diversification opportunities for us and paves the way for collaboration with innovative startups. So it's very, very important for us. But again, it's quality of investments over speed of deployment.
Good. Thank you.
Then, thank you very much. The next question is from Kim Fustier of HSBC.
Hi, good afternoon. Thank you for taking my question. I've got two on LNG, if I may. I guess, could you explain once again the rationale for going into international LNG? LNG is clearly a scale business, and that you got in mind to reach meaningful scale. You've now got several, well, minority stakes in a few Australian LNG projects through MidOcean. I'm just curious as to what you're hoping to learn from your participation in these projects. Is it more about operating liquefaction plants or trading capabilities, or is it about the customer-facing aspect? And then finally, just, again, on LNG, you've been linked to a potential LNG transaction. Now, I know you can't comment on specific deals, but generally, can you talk about what you would be looking for as you build up capabilities in LNG? Thank you.
Thank you, Kim. Our biggest interest is in offtake and trading. And so, yes, we admit we're starting. This is a very, very small step. So far, we're looking at increasing that, increasing the volume, and specifically increasing offtake volume and increasing our capability. We're building our capability to trade so that, because we think that has the opportunity of creating considerable value for us. Domestically, the amount of gas that we're finding and developing is also, you know, gives us optionality going forward. I spoke earlier to one of the questions that yes, we're prioritizing blue hydrogen, but we're also, you know, a consideration could be LNG if, you know, the volumes significantly exceed the domestic demand.
Of course, that depends on a lot of factors as well. But globally, we're interested in offtake and trading, and we've elected to build this portfolio gradually, because, again, we're focused on the quality of the investments as opposed to, you know, a big move from day one. We realize that this requires a lot of learning along the way, and so we're proceeding carefully.
Thank you.
Thank you, Kim. The next question is from Oliver Connor of Citi.
Go ahead, Oliver.
Thanks, Peter. Thanks for taking my questions. First one I had was just following up on the point around domestic demand on the gas side. You know, you mentioned you look at LNG if it exceeded domestic demand. It feels like on the demand side, that you know, the power system is an important part of that. But if there is discussions around a higher renewable capacity, which obviously take away from the gas demand. So just trying to get a sense of sort of how you see domestic demand for gas playing out through this decade. And then the second point, maybe just sort of following up on Jafurah and development there.
You know, any comments you can give around, you know, the productivity gains, you know, that you're seeing as you ramp up the development, and maybe some comments around, you know, the potential for, you know, rig additions, and kind of peak rig counts for that field as you develop that?
Thank you, Oliver. On your first question, I do need to remind you, we are prioritizing blue hydrogen, so but nevertheless, on domestic demand, renewables are coming in, and it's a very aggressive growth that the Kingdom of Saudi Arabia is seeing on renewables. But most of that, as well as the extra gas that's coming in, is going towards displacing a lot of the liquid burning that is happening today. Liquid burning is; we're on a process of phasing out the liquid that is burned. And so, in that sense, the gas is not really competing with the renewables, but both are coming in to displace a lot of the liquid that's being burned today.
On your second question, I'm not going to comment on specific, you know, peak rig counts, or what have you. What I will say is, we're increasing, we've increased our gas program. We have a massive growth program in gas, so there has been some rig additions, and there are a lot, there's a lot of work for the rigs that we have. But I will not comment on specific numbers.
Thanks. Thank you, Oliver. And the next question is from Shashank Lanka of Bank of America.
Yeah. Yes, thank you, Peter and Ziad, for the call, and congratulations on a strong set of results. So I have a couple of questions. The first one, again, just going back to your gas production timelines. You did mention, you know, the target is to increase production by greater than 60% versus 50% previously. Now, we do understand there's uncertainty on blue hydrogen, and LNG as well seems more like an optionality. So assuming the blue hydrogen or the blue ammonia market doesn't really develop, is there a risk for that 60% increase? Or, you know, is that 60% kind of secured through enough domestic demand? Then that's the first question. And the second question is just on your, you know, capital allocation strategy.
We do understand for the CapEx cuts that you mentioned last time, given the MSC decision, your gearing is still negative. I know you don't have a specific gearing target, but just wondering, how should we be looking at dividends given, you know, it's quite clear that dividends next year will be lower than this year, given the performance-linked dividends for FY 2024 are based on two years, whereas from next year, it's just based on one year. These are the two questions I have. Thank you.
Thank you, Shashank. On the gas production target, the bulk of the increase in gas production is going for domestic demand. You know, we were talking about 1 billion standard cubic feet that's going for blue hydrogen, but the bulk of the increase is going into domestic demand. So, that gives you an idea about the low level of risk that's associated with these volumes. Again, today, liquids are being burned, so it's not just the increase in domestic demand, but it's actually specific plans that are there to displace liquids that are being burned in specific regions in the country at specific power plants.
The company is building or expanding its Master Gas System through Master Gas System three, which is designed to get this gas that's gonna be produced to the specific regions and plants that are supposed to be switching, phasing out liquid burning, if you will. So we have a high level of confidence on these volumes. On gearing, look, the way we've always said is that we're not targeting, like you so correctly said, we're not targeting a specific range of gearing, you know, in a given year. We are, however, looking at having an optimum capital structure across the cycle.
So we, you know, in an industry where the cycle is 5-7 years, it is extremely difficult to be able to always be at an optimum capital structure because of the nature of the spending profile in our projects. This is especially difficult because we're in significant growth mode. And so, you know, projects start slow and then peak. What I can tell you is, reiterating that we're not keeping cash for the sake of keeping cash. This is why we introduced the performance-linked dividend. This is why we put it at the high end of the range, 70% of the free cash flow, net of the deductions that you're familiar with.
This is why we started actually paying it the middle of last year instead of waiting for the full 2023 to close. Because we were comfortable that we can actually fund our capital program, you know, with many scenarios that we run. Going forward, we will continue the same exercise. We will continue the exact same cash flow allocation priorities, you know, sustaining CapEx, followed by sustainable and progressive dividend, which is the base dividend, and then growth CapEx, including the external investments, and then additional distributions. And then at this phase, we've done most of the deleveraging, so, but, you know, in the future, to the extent that we do that, it'll be the last priority. So, pardon me.
Going forward, you know, you can expect, you know, balance sheet gearing to increase as we continue to optimize our capital structure.
Thank you for that, yeah.
Thanks, Shashank. And that actually is the last question that we have on today's call. Thank you for everybody for joining us. I appreciate that. As you know, as Ziad said at the start of this one, it's always a pleasure to do these calls. Even in the first quarter, when you know it's not the first quarter is not the quarter for new targets, developments are on track, all the numbers are in line. You know, and I think it shows the good delivery on our progress, you know, on strategy of growth and value. If there are any other questions, please don't hesitate to call us at Investor Relations. Thank you very much, and thank you, Ziad, for joining us today. Thank you.
This concludes today's call. Thank you for joining. You may now disconnect your lines.