Earnings Call: Q2 2021

Aug 9, 2021

Welcome to Saudi Aramco's Half Year twenty twenty one Earnings Conference Call. We will be holding a question and answer session following the presentation. I'll now hand over to Fergus MacLeod to begin. Hello, and welcome to this audio webcast discussing Saudi Aramco's Half Year twenty twenty one Results. Fergus MacLeod, Saudi Aramco's Vice President of Investor Relations. And it gives me great pleasure to be joined today by Amin Nasser, our Chief Executive Officer and Ziad Al Mirched, our new Chief Financial Officer. Our webcast today I'd like to remind you that this webcast and conference call are being recorded. Before we start, I'd just like to draw your attention to this cautionary statement. During today's presentation, we may make forward looking statements that refer to estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note on this slide. And please also refer to our regulatory filings and website for more details. With that, I'll now hand over the call to Amin. Thank you, Fergus. Welcome, ladies and gentlemen, and thank you I am pleased to report that our performance in the first half twenty twenty one demonstrates the growing confidence of the energy markets in a strong recovery after the lows of 2020. While there is still some uncertainty around the lens and depth of the challenges posed by COVID-nineteen variants, We have shown that we can adopt swiftly and effectively changing market conditions. Our strong results reflect the strong rebound in worldwide B demand, And we are heading into the second half of this year more resilient and flexible as the global recovery gains momentum. It is my great pleasure to now introduce Riyadh Elmershad, our new Chief Financial Officer. Thank you, Amin, and welcome everyone to the first half earnings call, and I hope you're staying safe wherever you are in the world. Before we get started, I'd like to briefly introduce myself. I joined Aramco 30 years ago and my career has taken me across the business from frontline operational roles in upstream and downstream to a variety of commercial and leadership roles. It's been an exciting journey and I've had the pleasure of seeing our company's enormous strengths firsthand, our performance, our reliability, our focus on scale and cost and above all our people. And I know I have a tough act to follow My predecessor Khaled Dibagh, who many of you know. So I'm honored to be stepping into the role of CFO as the company continues its remarkable journey. What I'm hoping to do today is share with you the underlying story behind the dashboard of numbers that you've seen in our reports and how Aramco's story is evolving amidst the operational and financial performance figures. As you've seen since the start of the pandemic, Aramco has been both resilient and flexible in the face of this We've stayed the course and I believe our hard work for decades in building resilience is paying off. As vaccination rates pick up with billions of vaccines administered globally, economies are reopening and returning gradually to pre pandemic levels. As a result, demand is returning and we're in a strong position to capture the upside as recovery gathers pace. Of course, we will supply the affordable and reliable energy that the world needs to support global economic recovery and we'll do so at low carbon intensity. We've also achieved key strategic milestones across our business in upstream, in downstream, in portfolio optimization and in financing. But none of this is possible without a fit and healthy workforce. So let me begin by providing an update on our ongoing pandemic response. Our first priority is the well-being of our people and their families. It is why we rapidly rolled out our own vaccination program for employees and their dependents at the start of Take up was high and I am proud to announce that nearly 98% of our 70,000 strong workforce and more than 70% of their dependents Have now had a vaccine, which helps keep our people safe and ensures the continuity of our operations. But even with the vaccine rollout, We remain vigilant. In line with the guidelines from the Citi, the Ministry of Health, we continue to strictly enforce social distancing and mask wearing throughout our offices and facilities, and we offer working from home for those who are medically vulnerable. I pay tribute to everyone at Aramco for the patience and adaptability they have demonstrated throughout the pandemic. We are proud that despite all of the challenges and disruption, our operations have remained uninterrupted with 100% reliability. With that, let's look at the market context. Last year, of course, saw one of the biggest collapses in oil demand since the 2nd World War, but it's now clear that the global economy and oil markets are starting to recover. Widespread COVID vaccination programs have resulted in the easing of restrictions and combined with the ongoing stimulus measures are fueling a robust economic recovery with tailwinds for oil demand in the second half of the year. As you can see in the blue bars of this chart, forecasts call for a recovery in global oil demand to pre pandemic levels by next year. As leading supplier of low cost and low carbon intensity crude oil, Aramco will be a key enabler of that recovery. So we are confident in the outlook. Looking back at the 1st two quarters of the year, we clearly see the recovery in oil demand and more importantly with discipline in supply, We saw a significant increase in oil prices and downstream margins. Now let's focus on the first half the progress that we've made in delivering Aramco's strategic objectives and continuing to maximize shareholder returns. In our upstream business, we completed the Endar and Fazran crude oil increments in the Rawar field. These increments are targeting a combined production capacity of 175,000 barrels per day. Looking forward, the Mirjan and Berri crude oil increments are now in the final stages of detailed engineering, and we expect them to come on stream by 2025 with a combined capacity of 550,000 barrels per day. In our gas business, the Hawiye Eneza reservoir gas storage program is also in its final engineering phase. It's planned to provide up 2,000,000,000 standard cubic feet per day by 2024 adding further flexibility in meeting the domestic demand. In the downstream, we safely started up Jazan Refinery and we are on track to reach its targeted capacity of 400,000 barrels per day. We're also making strong progress in the integration of Sabik. Our achieved synergies are ahead of plan and we've optimized our go to market strategy for all products. I'll take you through those activities in more detail in a moment. We remain committed to the global energy transition and we view renewable energy as a complement to our own energy products, not least in the kingdom with its vast solar and wind resources. With that in mind, We're evaluating potential projects with partners to make investments in renewables. We will also continue to pursue long term plan to unlock and redeploy capital and we'll continue to reinforce our balance sheet to optimize capital structure and maximize shareholder returns. As part of this plan, we recently completed the lease and leaseback transaction of our crude oil pipeline network, which raised $12,400,000,000 and we will continue to pursue other potential opportunities that unlock capital to enable long term shareholder value creation. We also continue to diversify funding sources and expand our investor base and we're delighted with the global investment community's positive response to our international dollar Sukuk. This gave us access to about 100 new investors looking for Shirea compliant financial instruments. Last but certainly not least, We are focused on developing people and on the workforce of the future. Earlier this year, we launched at the Mayu Finance and Accounting Excellence Academy to help in the growth of financial services in the region and form a highly skilled talent pool. This is a first of its kind collaboration between leading National and domestic accountancy firms and global investment banks partnered with 1 of the top business schools in the world. Let's now dive into more detail about our progress integrating SADIQ into the Aramco Group. As a member of SABIC's Board of Directors, I see value levers being used not only from the Aramco Group perspective, but also from the Sabik perspective. Our controlling stake in Sabik Accelerates our downstream strategy by helping us leverage petrochemical growth opportunities and generates considerable value in the form of synergies that impact our bottom line. We expect to capture value of between $3,000,000,000 $4,000,000,000 of annual recurring synergies by 2025 with the majority of this value coming from procurement, Sales and marketing, supply chain, stream integration, feedstock optimization and maintenance. So far, We're well ahead of our plans, but nevertheless, we're intensifying our efforts to expedite execution even further and to identify additional opportunities. With that overview, let's look at some of the numbers for the first half of the year. In H1, We generated net income of $47,200,000,000 and free cash flow of $40,900,000,000 This strong performance and high level of free cash flow generation supported our dividends of $37,500,000,000 for the first half of the year. Looking at the details, we see that net income more than doubled from H1 of last year with improvement in both upstream and downstream. Upstream delivered an EBIT of $85,400,000,000 in H1, which is a 63% improvement over H1 of last year, mainly driven by an increase of around $27 a barrel in realized oil prices, partially offset by lower production. Our Downstream delivered EBIT of $9,000,000,000 mainly due to higher margins, performance improvements, the consolidation of SABIC's results and favorable inventory effects. This strong performance led to strong cash delivery in H1 with our cash balance rising by $12,300,000,000 to end H1 with a balance of $67,600,000,000 Three key elements to note. Firstly, the strength of operating cash flow is driven by our ability to capture higher crude oil prices as well as downstream and chemicals margins. As you can clearly see from the charts, H1 cash flow from operations more than covered CapEx and dividends. Separately, net proceeds and borrowings of $9,000,000,000 mainly included $12,400,000,000 from the crude oil pipeline transaction and $6,000,000,000 from our inaugural international Sukoka issuance. This was partly offset by the scheduled payment of $5,000,000,000 to PIF for the 2nd installment of the Sabik acquisition. Finally, despite this borrowing, our gearing further reduced from 23% at the end of 2020 to 19.4% at the end of June. Our financing framework is clear and has 3 pillars: prudence to maintain sufficient capacity in the face of price and volume volatility optionality and execution flexibility, which is achieved by diversifying our financing sources and expanding our investor base and of course efficiency which is achieved by working across the group to optimize financing cost. The objective remains to maintain an optimum capital structure, a diversified and expanded investor base, a strong balance sheet, healthy cash balances and a strong credit rating. Now let's zoom in a bit on CapEx where we continue to exercise financial prudence and discipline when it comes to capital allocation while investing for the future. We continue to demonstrate the flexibility in our capital program. As you can see, after being able to flex down our capital expenditures last year in response to the market downturn, we were able to quickly flex up with signs of economic recovery. This is one of our competitive advantages as we bring incremental supply from our high quality, low cost and low carbon intensity resources. We continue to expect 2021 CapEx to be approximately $35,000,000,000 which is a 30% increase from 2020 at a time when the industry has reduced capital investment over the cycle. Given that we are the major producer with lowest upstream carbon intensity and lowest cost, It makes both environmental and economic sense for incremental global oil demand to be met by ALCO. As we optimize our capital program going forward, We have a unique and significant opportunity to accelerate our growth in line with our strategy through the participation in the Sharik program, which was recently announced by the government of Saudi Arabia. The word shariq in Arabic literally means partner This win win public private partnership is intended to drive economic growth and job creation by offering incentives for large companies to invest. We're thankful to the government for this program that could offer attractive incentives for a range of our strategic investments, thereby enhancing their economics and accelerating our strategic growth. As we deliver long term sustainable growth of our core business, we're focusing on upstream liquids and gas and on downstream. 1st and foremost, we're increasing our maximum sustainable capacity from 12,000,000 barrels per day to 13,000,000 barrels per day. This will allow for volume growth of the low cost, low carbon intensity oil the world needs. We're also growing our gas business to meet the growing domestic demand at commercial rates of return and to provide feedstock for our blue hydrogen plants. In the downstream, We're focusing on improving performance through SABIC's integration, asset transformation and expansion of our global trading business. We're also focusing on further derisking our upstream position through expanding dedicated outlets for our crude oil that have high conversion rates into chemicals. As we grow, we will continue to optimize our portfolio and unlock and redeploy capital while retaining control of operations. We're also continuing our focus on affordable low carbon energy. As I mentioned earlier, we have the lowest upstream carbon intensity of any major producer. Our upstream carbon intensity of 10.6 kilograms of CO2 emissions per barrel of oil equivalent in 2020 is around half that of the OGCI 2025 target, which is 20 kilograms of CO2 emissions per barrel of oil equivalent. This is the result of decades of long term reservoir management and leveraging advanced technologies. We are proud of this leadership and determined to maintain it as we believe it is a significant competitive advantage in a lower carbon world, especially with our high quality prolific reservoirs and the advanced technologies we deploy in these reservoirs. At the same time, we're intensifying our focus on affordable low carbon energy, especially the potential rapid growth in hydrogen demand, again taking advantage of our high quality reservoirs to develop large scale Cost competitive carbon capture and storage opportunities. Before we take your questions, let me summarize. Our strategy is on track to deliver value to our shareholders and we remain positive about the prospects for future growth. We've demonstrated our resilience once again and we now see positive and growing momentum in earnings and cash generation. We are effectively executing our portfolio optimization program to unlock and redeploy capital. We continue to diversify our funding sources and expand our investor In line with our financing strategy and we declared a dividend of $37,500,000,000 for the first half of twenty twenty one, which combined with our CapEx was more than covered by our free cash flow. Thank you for listening. Thank you, Ziad. I would like to say a few words in conclusion before we take your questions. Our financial performance is strong. But even more importantly, we are making good progress in delivering our strategy. We are beginning to accelerate our future growth, increasing investment in sustainability and the supply of low carbon intensity, low cost energy that the world needs as it recovers. This acceleration in growth will be supported by the Sharik program. We are achieving our downstream integration and expansion goals and maximizing the value of our assets by redeploying capital to higher return areas. For all these reasons and many more, my team and I remain optimistic for the future and the value that we can create for society and for our shareholders. Riyadh, Fergus and I now look forward to taking your questions. I'll now hand back to Fergus. Thank you, Jordan. And I think I see the first question coming from Martin Sudari at Al Razi Capital in Riyadh. Marzen, please go ahead with your question. Thank you. Congratulations on the good set of results, and thank you for My first question is on the Sherik program. Could you outline Aramco plan for the Sherik program in term of And outline and incentives for Aramco, if you can. Second question is Global supply of oil, global investment in oil and the overall supply is declining. Is Aramco planning To use this opportunity to revise the strategy of CapEx or to maintain it, could you please share your thoughts around this? Thank you. Thank you, Marlon. So one's about the Sharik program, the partnership program. Are we yet ready to talk about what scale that program might be and what is support we might expect from the government to accelerate some of our growth programs as part of that overall scheme. And the second one is that many commentators believe that the global industry may be underinvesting in new sources of hydrocarbon production. And Is that do we share that view and do we believe that, that creates an incentive for us to move more quickly in that area? Thank you, Madeline. With regards to the Sharik program, first, it's a voluntary program, And the purpose of the program is to basically increase the participation of The private sector and local economy by creating incentives. So it's a win win for the government and the private sector. We are participating in the Sharik program. We are currently reviewing a lot of projects, Benefit out from these incentives. And these incentives could be either in terms of infrastructure, regulatory frameworks that are required or financial or taxation or tax All of these are being put on the table, if you would, by Saudi Aramco. And I would say it's a once in a lifetime opportunity, which we intend to make the maximum use of it. And we are really thankful to the government for this win win public private partnership that Will help us accelerate our strategic growth. As I say, details are still under development and so is the incentives that are currently being negotiated. We have put a dedicated team diligently evaluating Candidate projects focusing on localizing our supply chain, other sustainability projects like crude to chemical And hydrogen, blue hydrogen, both programs that are important for us to continue to maintain our Leadership position globally when it comes to emission and diversify our income over the long term. But these projects are Require some incentives, and this is what we are doing right now in participation with the government. With regard to oil supply, as highlighted by Riyadh earlier, we are the lowest cost producer and the lowest In terms of emission, we see a lot of drop in investment when it comes to crude oil supply in the mid and long term as highlighted by a lot of the analysts. And we are capitalizing on the opportunity by first, Increasing our MST maximum sustaining capacity from 12,000,000 to 13,000,000 barrels, and we are currently working on the front end engineering. But this is an opportunity. And of course, we are trying to benefit out of the lack of investment by Major players in the market by putting investment in this sector. Thank you again for that question, Lars. And I think the next question Thank you very much. Very clear. Thank you. Next question comes from Alastair Syme at Citigroup. Thanks, Fergus, and thanks for the opportunity to ask good questions. And again, congratulations on the results. Can you talk a little bit again about Tariq, just follow on from that question, from your first question, specifically around the renewables sustainability path. I did note that the government did award PPAs to 7 projects back in April under the 2nd phase of the National Renewable Energy Program. So Clearly, some developers seem to think the economics are already pretty good for this sort of investment. So just trying to understand Why more incentives might be needed or where could incentives enhance the rate of growth? Thank you. Thanks, Alastair. So I think the question is, again, just to dig into the renewables issue and how does that relate to Sharik? I think as CEO mentioned, Sustainability is a big focus, accelerating investment in sustainability is a big focus of the projects that we're examining for participation in Shuri. But specifically, I think your question is about renewables and does it need incentivization. Thank you, Alastair. We are partnering Currently with BIAF and Aquavower with regard to the renewable program seeking opportunities in the renewable program, the government announced a plan to be 50% of the utility sector Will be on renewable, 50% will be on gas. Basically, the Utility sector now, it means a lot of liquids that is currently going to the utility sector Will be replaced either by renewable or by gas. And in both cases, it will I feel that liquids for export markets at a much higher price, and at the same time, it will help us to increase efficiency and reduce emission as a kingdom. So the program has a lot of benefits to the kingdom and to the private sector. The Sharik program also looks at, for example, if I give you an example on the hydrogen, blue hydrogen. Blue hydrogen is also require a lot of carbon capture and sequestration. And this is where we look for incentives. I'll give you 2 example of that. They sort of mimic what the Sharik intention is. It's Maritime Complex and Basel Fair, the Kingston Mine Maritime Complex and Kingston Mine's Energy City, both programs We're close to completion. Basically, it will help us to build Tankers, platforms, fix our barges and maintaining our fleets, boats, Engines manufacturing, it will increase our reliability. Reliability is very important and critical to Saudi Aram. With the shirk, I mean before the Sharik program, the kingdom in order to facilitate and support these programs at Ras al Khair, King Salman Maritime Complex And the Energy City where we brought the biggest player in the energy sector to that Energy City It supported the infrastructure, built the infrastructure. Aramco gave the funding required for Aramco to build the where the partners did not incur any cost in terms of abating that infrastructure. So basically, the government has helped a lot by bringing all of these major players around the from around the world to the kingdom. At the same time, we benefited as Arambu by being partners with a lot of companies by increasing our reliability. You have seen And the attacks in Upgate and on Harel, during the pandemic where a lot of manufacturing We benefited a lot by maintaining our reliability by relying on our local suppliers. So having these Major industry manufacturing hubs in the kingdom helps to maintain a bumpy liability. We are enjoying today 100% of liability. Even during that, we were at 99 point something. So it shows how much is that our local content and having all these industries in the kingdom Help the company to maintain a high level of reliability. Thank you. Yes. Thanks, Tahir. So it was just on the blue hydrogen. Do you anticipate the blue hydrogen being primarily for the domestic market? Or do you see the export opportunity starting to grow? Well, we are looking at export opportunities in terms of blue hydrogen. Currently, blue hydrogen require, in addition to The ammonia as a transport media for it and all of that and shipping it to markets, it require a lot of carbon capture and sequestration. And we are doing a lot of work in terms of front end engineering for carbon capture and sequestration to appeal that. And we are also engaging with different markets around the world in terms of offtake agreement. So we are Doing all that what's required to avail blue hydrogen. At the same time, we are in discussion with different markets. The major markets that you're looking at today in terms of demand is Japan and Korea in terms of demand for blue hydrogen. And as these markets grow, it will increase the availability for us to And the opportunity for us to produce more blue hydrogen for its most market. Next question, I think, is coming from Karen Costanian from Bank of America. Karen, are you there? Yes, I'm here, Fergus. And gentlemen, thank you very much for the presentation. Congratulations on great results. And Mr. I'm going to be on the regional. I'll also ask a question about the Sharik Do we am I understanding correctly that the $35,000,000,000 CapEx guidance for this year Does not include the Sherik program. And if it doesn't, would you also consider stretching your potential leverage targets of 5% to 15% To accommodate the Sherik program, that's my first question. And my second question is that back in the day when Aramco IPO ed and the world was Normal, you also considered potential aggressive dividend policy. And now as the world returns to normal, whether you plan to revisit that policy? Thank you. Okay. So two questions there I think. One of them is about, is there anything for Sharik in 2021 capital spending guidance and would the incorporation in the future cause us to think again about any of our leverage targets, The leverage targets that we talked about in the past and I think you used the word normal about 2019. It seems a long time ago now, but We did give capital spending guidance at that time of €40,000,000,000 to €45,000,000,000 And I think the suggestion perhaps in your question was whether that's an indication of the direction I've traveled from the €35,000,000,000 of guidance that we provided for 2021, if I understood you correctly, Karen. Yes, that's right. And my second question was about the dividend, yes. And how that relates to dividend, yes. Okay. I will take the thank you first, Kevin. And I will take the first question and Diag will address the second question. Yes. $35,000,000,000 does not include anything from the Sharik program yet. As I said, we are currently working Identifying the opportunities for these programs, and it is very important and critical for us because It's not important for growth only. It is important for sustainability because we are looking at a lot of projects that will help us to diversify, at the same time reduce our emissions. Case in point is the crude to chemical and blue hydrogen. And the previous guidance about Leverage and I think you're talking about the 5% to 15%. It will all depend on the opportunities that we are looking at right now. We will we have Always capital prudent and strong balance sheet. As you highlighted by presentation by Ziyad, you've seen the cash balance by At the end of the year, we are in a very strong position going forward. And with the right incentives, It should help us really to meet our aspiration not only in terms of growth, but more importantly in terms of maintaining And leading in carbon emissions on the long term. Yes. Thank you, I mean, thank you, Keren, for the question. On the 5 to 15 gearing range, we look at that as a general range. It is cross cycle that we're looking at and obviously it's range. We have a lot of considerations that we have and a lot of issues or factors to balance. We basically have a financing strategy that has that looks at 3 main things: prudence to maintain sufficient capacity with the price and volume volatility. Optionality and flexibility, which is why we are diversifying our financing sources and expanding our investment base investor base. And of course, efficiency working across the group to optimize financing costs. But the objective As opposed to having a hard gearing range is to maintain an optimum capital structure, diversified and expanded investor base, A strong balance sheet, multi cash balances and of course, a strong credit rating. Now That closely ties to how we look at the pecking order on our cash. So I want to make sure that you understand that the Sharik program is coming offering a lot of opportunities, but that does not mean We will not continue our tradition of financial prudence and capital discipline. So we have clear priorities for cash that have not changed And we don't anticipate them to change soon. First, of course, is looking at or addressing And catering for sustaining CapEx. We then maintain the ordinary dividend. And After that, we look at growth opportunities, again, exercising the financial prudence and capital disciplines that Used to from us. And then finally, we look at a mix of additional distributions, Further deleveraging or a combination of both. I just do want to remind you that historically, The company had distributed special dividends. Of course, 2020 Was not a good year for the industry, so you didn't see that. But if you go earlier in our history, Not much earlier. We have actually distributed. Thank you. Yes. Thank you, Karen. Hope that addresses your question. Next question, I think, is coming from Martin Ratz at Morgan Stanley. Martin, go ahead please. Yes, thanks. A lot of questions about the SIBREIT program, but I also have one. If you look at the returns that are available for you to invest in So under this program, including the incentives. I was wondering if you could say something about how those returns would compare to The returns that are available to you in the Upstream, because of course historically the returns in the Upstream have been very compelling. And I was wondering If they are a sort of benchmark or a threshold for you to meet elsewhere too or whether the return requirements Investments under this program are somehow lower because they are of a sort of different nature. So the return on comparison, sort of, That's one thing. I was very interested in it. And secondly, I was wondering If you could say a few things about, yes, the increase in the MSC to 13. In principle, the logic is relatively straightforward. You have Low emissions barrels and a lot of them at low cost and the rest of the world is not really investing all that much. But the history of those types of Expectations, I can say from experience, I have to admit, has been mixed at best. And for the next 2 years, It doesn't look like the underinvestment is so obvious. The world still has a lot of spare capacity. The U. S. Rig count is kind of coming back. What gives you longer dated confidence that the world indeed will need 13,000,000 barrels of MSC from Aramco? Thank you, Martin. So I think the first one is about what are the expectation returns for projects under Sharik? They have to be competitive with the returns in the upstream. I think we've said public in the past that it's very difficult for anything to compete with upstream returns in oil, which are very high indeed. But there are other aspects of the upstream gas, for example, which has been very successful in that doesn't have the same returns That's oil, but what are the expectations for Sharik returns? And your second one, I think, is about how can we feel confident that the world's going to need 13 new barrels a day of our low carbon, low cost production capacity. I'll just remind you one thing, Martin. I think we talked about during the IPO that then have to be producing constantly at that level for it to deliver very good returns. The optionality that comes with the ability to flex upwards Well, it has a supply disruption elsewhere can itself be extremely valuable. And I think we had gave some numbers during the IPO on that. So I just So the caution that you don't have to believe €13,000,000 on a sustained basis in the near term to believe that, that would be a very good investment. Anyway, I believe those were your 2 questions, Marc. Okay. Thank you, Marc. I will address the second question and Now, Zia to go through the first question. Now with regard to the $13,000,000 yes, if you look at the next 2 years And in terms of what MSC capacity of $12,000,000 end markets and how much of that we will utilize, You must be right. But don't forget, it will take you almost a good number of years to bring that capacity to the market. Front end engineering alone takes 2 years. You didn't do anything on the ground, just front end engineering approximately 2 years. When we do our plan, we look at the long term. I always caution the international markets about what is coming ahead of us. When there is a need for additional capacity, it's not going to come easy. Any increment that takes 5 to 7 years, At least some increments, they take 8 9 years to bring them to the market. So for us, just front end engineering, the next 2 years, you are looking at Front end engineering. Then you start the construction. Then you will take a good number of years, 5 to 7 years just to bring these facilities On stream. So it's a you have to plan for the long term. You will need to put the investment and anticipate the growth that you will see in the future. Considering that you are the lowest cost producer and you have the lowest emissions, so you have the biggest opportunity in terms of placing that in the markets. Not to mention our aspiration and how much we will put crude to chemicals and all of that. So we need that additional capacity for these projects that we are planning in the future. I'll just say a little bit about it. There is nothing much upstream. If you compare downstream to upstream, no, they are not the same. However, when we do any downstream investment, we look for healthy returns, Attaching any investment anywhere in the world. We always plan for healthy returns for our home steam investment, and this is Bartok, also the incentive program as Bartok Khasharikh that we are looking at and discussing. Yes. I just want to say that Again, reminder, financial prudence, capital discipline is not changing with or without Sharik. Like Amin explained earlier, Sharik is a voluntary program. So we're looking at this as an opportunity. We're looking And specifically in the projects, internally within the company management is going to treat those exactly like any other projects. We're still going to go through the gated process. We're still going to be disciplined on what types of projects we're targeting. Like Amin explained earlier, we're talking about Strategic projects. So we're focused on localizing our supply chain, not only to improve our the response times of our contractors, but also long term to help reduce our costs when our suppliers are nearby. We're also focused on I mean spoke about sustainability projects, but we're also focused on crude oil to chemicals. And just keep in mind that crude auto chemicals is strategic for us because it derisks our upstream barrels By converting a big percentage of them into or the molecules into chemicals. As we explained earlier and I explained in the presentation, the specific projects for Sharik are still under development. We're still working out the numbers and the priorities, but a good idea to keep in mind is that we're looking for double digit returns. What those will end up specifically being, we're still working on the number. All right. Thank you. Thank you, Martin, for your question. And the next one comes from Michele Della Vigna from Goldman Sachs. Michele, please go ahead. Thank you so much, and congratulations on the strong results. Two questions, if I may. The first one is on The potential increase to the 13,000,000 barrels per day of available capacity. I was wondering, as you start the engineering process for that increase, How do you think it's likely to come in terms of enhanced processing facilities and drilling versus Potentially, the development of Newfield, where do you think that the highest return opportunity to enhance the capacity comes from? And then going back to your low carbon investment, you've been a leader effective in low carbon oil production for decades. But as you start to think about blue hydrogen carbon capture, do you see breakthroughs in that technology that could make it more attractive from an economic perspective and what we've seen until now. Thank you. Thanks Michele. Two very interesting questions. So are we at a point where we Can talk in more detail about what the optimum economic strategy for the expansion to MST13 will be, what's the best way to bring that forward in terms of the balance of New increments, new fields from existing. And then secondly, on the blue hydrogen, do we see any sort of technical frontiers that might accelerate the economics. I think there's a big push globally in terms of trying to improve The economics of decarbonized hydrogen and what are we thinking about that? Thank you, Michele. The Increase from $12,000,000 to $13,000,000 will mainly come from offshore expansion while maintaining our low depletion rate Right. That is strong, a very important element for the company. We need to maintain a low depletion rate in our field when it comes to production. So we majority for the time being is going to come because we have the highest Then biggest reserves that is remaining reserves is in the offshore, While we also bring some from the onshore development. With regard to the low carbon R and D or technologies, you are absolutely right. Most of our research have 9 centers out of kingdom, 3 centers. A lot of it is focused on how do we capitalize on technologies to reduce our cost And shift more of our, for example, gas to hydrogen while at the same time producing cost. If you look at chemical, for example, crude to chemical, It will help us a lot reduce our emission, maximize value by going down the value chain and also diversify our income over the long term. But a lot of technologies are being developed by Aramco, for example, thermal crude cracking and catalytic crude cracking that helps us to shift 70% of the barrel to chemical, while at the same time reducing our capital cost by 25% to 30%. Carbon capture and sequestration is also an area of interest because the biggest cost element in converting gas to hydrogen It's carbon capture and sequestration and how much you can reduce the capital spending by capitalizing on new technology. And there is a lot of development in that area that we are currently working with our partners to help reduce the cost further And maintain the leadership for blue hydrogen because at the end of the day, you have to compare blue hydrogen with green hydrogen. And today, Blue hydrogen in terms of cost is lower. So how green hydrogen is achieving some a lot of development in terms of reducing the cost over the long term. Similarly, the advantage for us is blue hydrogen. We have also similar advantage, by the way, here in the Kingdom for green hydrogen. It's an area of interest as well. However, we are working on both and looking at how can we reduce our cost because the capital cost is a key. How do you reduce? In similarly, reservoirs. Today, if you look at carbon capture and sequestration, how do you identify the best reservoir with the highest And the highest permeability because that will reduce your cost. It will reduce your compression requirements. How do you identify fields for sequestration that is close to your existing plants that can take advantage of these high volumes of CO2 that you will be sequestering. Just maybe add to that. Thank you. We are working or utilizing SABIC's capability in ammonia production as well as some value chain In that product. Now in terms of cost optimization, We optimize not only when we bring the increments in, but as we're producing. We have one of the top ten Most powerful computers in the world to use in simulation just to optimize production. We're closely looking at production costs from different fields and constantly optimizing where that cost is or how to optimize that cost. But again, like Amin said, We're doing the detailed engineering. We're going we're taking this one step at a time, And I'm sure a lot of adjustments will be made along the way. Thanks for the question, Michele. It's a very Exciting areas, I'm sure we all believe. Next question is from Gordon Gray at HSBC. Gordon? Thank you. Thanks very much for the presentation and the opportunity to ask questions. Two quick ones really, if I could. The first one is you've talked about dedicated outlets for oil to petrochemicals. And on that subject more specifically, it's probably 2 years on now from when we started to hear about the link up with Reliance Industries. I wonder if you could update us on If there's any progress there that you can think that you can talk about. And the second one is a broader question about portfolio optimization. You just had Very welcome, dollars 12,400,000,000 from the pipeline deal. Wondering in general terms, if you can talk about What may be considered not core? What sort of things are you looking at for future optimization of the portfolio? Thanks very much. So a broad question, I think about the whole issue of equation down the value chain, whether that's crude chemicals or replacement On the specific opportunity potentially in India of Reliance. And the second one, the criteria for portfolio optimization scale, How do we make those decisions as to which assets are candidates for that program? Thank you, Gordon. Because of our large scale, it require our presence in all in clay. And we do have a diversified customer base with presence in all major markets. We are meeting our commitment to the highest reliability. Of course, India is very important market. China and India are very important markets. We are working on the due diligence in terms of that acquisition with Reliance. But as you Appreciate because of COVID-nineteen, experienced some delay in terms of completing that due diligence and Completing the work required and such, we are catching up, but this is an important area and the work is still on. Our portfolio optimization or our divestment is an important part of Divestment is an important part for portfolio optimization. The objective of the program is to unlock capital and redeploy it to generally higher value for generate high value for our investors and support our strategy of execution. Our plans are progressing well. The oil pipeline deal that you highlighted is complete. And we are developing other great potential or great deals. We will be announcing them in due course this year and in future years. But that program will continue. We will be, as you saw in the oil pipeline deal, it's a lease and leaseback for 49% for 25 years. So we are looking at potential That's for other deals that we are currently in negotiation. We'll put it that way. Diah, do you want to add something? Yes. Gordon, One thing to keep in mind is that you've seen in the oil pipeline deal that we've retained control. So The way to think about this is not core versus non core. The way to think about it is where do we have Capital that's tied up that we can unlock and move it or redeploy it to somewhere where we can generate higher value. So since we're retaining control in most of these, whether it's core or non core is not the key determinant. That's very clear. Thank you very much. Thank you, Gordon. Our next question is from Erwan at RBC Capital Markets. Erwan, are you on the line? Hi, Eem. Can you hear me? Thanks, Eem. Yes. Thanks for taking my questions. So Quick question on SABIC actually. So you expect to generate $3,000,000,000 to $4,000,000,000 of annual synergies by 2025. What are the main factors making the synergies realization moving within that range? And how substantial is COVID at risk, especially when it comes to supply chain, The supply chain and procurement aspect of this synergy realization. That would be my only question. Thank you. Thank you. That's clear. And so the question is, we've talked about the €3,000,000,000 to €4,000,000,000 of synergies by 2025. What gives us confidence? I think we may have said in the prepared remarks, we're ahead That one gives us confidence. And is there any risk from the pandemic that might actually slow us down? I know we're going fast. Erwan, thank you for the question. When we look at the Sabex synergies, there are 2 aspects to look at. The amount of the synergies, the 3,000,000,000 to 4,000,000,000 by 2025. And the second is the timeline of these, the fact that they we will reach end state, we expect to reach end state by 2025. On the amount, we actually started planning for these synergies as soon as we signed the share purchase agreement. So throughout the year and a half or so that it took to do all the regulatory approvals, we were busy Jointly developing a lot of these synergies. We started of course before signing the agreement with a top down estimate. But after signing the share purchase agreement, we actually bottomed up all of these. So we have great visibility and a Relatively high level of confidence that we will be able to achieve these. I want to say that those synergies are 2 types, combinational synergies, Which normally in acquisitions of this size, you would have most of the Synergies being combinational synergies because of usually high overlap in the product portfolios of both companies. In our case, however, the overlap was not as high as some of the other deals. So we had also a very high percentage of Transformational synergies, these are where we just completely look at what is the best way of doing business in a certain function And we changed the way that both companies actually do business. So roughly very roughly half and half are between combinational When it comes to the timeline, because we have such a high percentage of Transformational synergies, those take a little bit more time. So this is why our timeline Stretches to about 2025 for end state. So far, we're ahead of the schedule that we've put in place. You might have heard, Sabik announce that we were ahead. They announced they actually announced a specific number. I believe it was Thursday. We're also if we look at the entire group, we're ahead of schedule. And Like I said in the presentation, although we're ahead of schedule, we're continuing to look for ways to expedite even further and looking for even more opportunities that we can capture. Just to add to what Jad said, Erwan, Even in our capital spending, we do have a lot of interest in chemicals, Especially crude to chemical and different enclaves around the world, SABIC also have the same interest. Before we acquired 70 SABIC was competing with Saudi Aramco in the same increase. For these high demand markets are of interest to all companies, Ramko and SABIC. Now because of this alignment, we are able to optimize our capital spending in these Market by capitalizing on SABIC as the chemical arm for SORGIARM. Just maybe one, sorry, one you did ask about Supply chain and the impact of the pandemic. We did see, of course, everything that All of these estimates were based on a baseline that we've used. We're very disciplined in the baseline that we used that we're comparing this value against. So we're looking at the 2018 audited financials, all the costs that are in there to compare What we're actually realizing, the pandemic and the resulting impact on the supply chain and the cost of the supply chain Did have an impact on the numbers, but both actually in Aramco and in SABIC, We're disciplined enough not to take that as an excuse. So we went back to the drawing board and we looked Look much harder for more synergies. And so we're still targeting the same level of synergies. It may be that we I'm a little bit below target on some functions, above target on other functions. But overall, we're very confident in the $3,000,000,000 to 4,000,000,000 Our annual recurring impact on EBITDA. Six main functions, like I said, just to remind you, procurement is The most or most of the value is in procurement, but we also have sales and marketing where we have and completely integrated and synchronized our go to market strategies so that we have one face to the market, but also supply chain And stream integration where we have a very, very high concentration of assets in 2 cities next to each other. So we have a lot of Aramco facilities and right next door literally across the fence are SABIC facilities. And there are a lot of opportunities to exchange streams and upgrade low value streams into higher value products. And then of course your regular operations and maintenance. Hopefully that gives you a very clear Next question, I think we'll cross the Atlantic and we'll go to David Havens, if you're still there, David, from SMBC Nikko. I think we may have lost David. Next question then is we'll come back to Europe and I think to France and Henri Patricot from UBS. Yes. Thank you, Fagis, and hello, everyone. A quick follow-up on around dividends and gearing. And thank you, by the way, for just laying out the updated priorities and the financial framework. My understanding Firstly around additional dividends was that Aramco would start to return more cash to shareholders if gearing fell below 15%. And it sounds like you may be looking at more growth opportunity than previously. So if we think at the point at which you would return, Raise the dividends, special dividend. Would it still be this 15% level of gearing? Or would that be Closer to the lower end of all the range of facts and just so I can get a better sense of how that is going to work out. Thank you. Sorry, you're suggesting that there was a relationship between the targeted level of gearing across the cycle, the 5% to 15% and dividend decisions. I think It's called a special dividend. Yes. No, thank you for the question. Like I said, 5% to 15% is not a hard target for us. It's a good indicative target that is cross cycle. We make the decisions Our Board makes the decisions on the dividend based on the dividend policy that I outlined earlier. The sustaining capital, ordinary dividends followed by growth and then A combination of distribution and leveraging. If I understand you correctly, you're asking about This 4th, the combination of additional distribution and deleveraging and where how do we make the decision? Is it based on the 5% to 15% range? It's part of it is one of the iterations that we have is the Gearing ratio. But also, we're looking at the different aspects of our financing strategy, Maintaining flexibility, expanding our investor base, keeping Healthy cash balances and a strong credit rating. I do want to highlight the importance of The growth opportunities that we have. And it's very important when we're making these decisions to keep in mind the specific Growth opportunities that Aramco has that may not be available to other companies. So We have to look at this decision a little bit differently, factoring not just a Hard gearing number, but just holistic picture. May I add to what J. R. C. Said. Thank you, Hendi. Our investors are definitely looking at sustaining Growing the dividend for the long term, but I'm sure they are also equally Interested in also growth sustainability program. We have, as I said, when I highlighted, talked about the Sharik It's a once in a lifetime in terms of failing incentives that will help us to achieve Some of our aspiration when it comes to sustainability and maintain our strong leadership when it comes to carbon emission. So while we are sustaining and hopefully growing our dividend over the long term and monitoring our gearing ratio, We need to grow and do more of the sustainability project that we are targeting. Our next question comes from Matt Lofting at JPMorgan. Matt, could you go ahead please? Great. Thank you, Fergus, for taking the questions, and thanks, gents, for the presentation. I had 2, if I could. First, Global Oil Demand. I recall you gave a positive assessment on the outlook during the full year results in March. It sounds like that's still very much the case today. I wondered if you Share any latest perspectives on notable regional trends that you're observing in key markets as Vaccine deployment is rolled out. And then second, just coming back to oil spec capacity in the MSC. I think you're right. We earlier referenced the company's capability to flex its growth program to capture opportunities. Given risks of industry underinvestment, assuming that the global demand continues The recovery trajectory you've projected, would you consider expediting further growth in capacity towards that 13 Yes. So oil demand outlook, 2 questions, I think. And then the second one is, could we accelerate MSC? As The CEO has pointed out, we're doing the front end engineering and evaluation of options to optimize the program at the moment. Is there a lever that we could pull To do that more quickly than might normally be the case. I think Matt is asking if we can accelerate beyond the 50. That as well. 1st of all, thank you, Matt. We remain confident in the outlook. We see a strong economic recovery underway resulting in demand rebound, especially The U. S. And China. Our forecast, if you look at today, We are looking at 97,000,000 barrels in terms of demand. By end of the year, forecast is around 99. Our expectation is will be, by the end of next year, is around 100,000,000 barrels. So basically, we will be, Right, toward the end of next year to be pandemic level in terms of demand. So we are very Optimistic and confident in the outlook going forward. Now MSC, as I highlighted earlier, people do not understand Look at that. It takes a lot of time just to do the engineering and then start building these facilities. And we are doing the 13 In spite of the decision on the 13, by the way, started in 2020. The government asked us to increase MVC from 12 to 13, And we capitalized on that opportunity. It's a government decision, but it is we are seeing an underinvestment in supply for sure. And this is great opportunity for us to increase our low cost, low carbon intensity supply. So we are Focusing on increasing the 13% at the current stage. And as I mentioned, we started front end engineering. And at the same time, if we get a request to go beyond that, we do have the reserve base to go beyond 13 if it's required. But this is all a question of time because these projects takes Between engineering and construction takes quite a bit of time, but we do have the reserve base. As you know, our reserve is 260,000,000,000 barrels. So it gives us the advantage to even go beyond that if The market or demand is there and if we get a request from the government with regard to expanding the MSC. Very clear. Thank you all. Thank you. And I think we've got 2 remaining questions. I want to thank them both for their patience And the second to ask is Jason Kenney at Santander. Jason, could you go ahead, please? Well, thanks, Fergus. Really appreciate it. And I hope all is well with you and yours, Saudi Aramco. Just one question really. It's on Hydrogen, a couple of the international energy majors have stated targets for double digit Market share of the global hydrogen market by 2,035 or the middle part of next decade. And I was wondering if Aramco had a figure in mind As to what kind of market share it could position for in global hydrogen, blue, green, all colors. Maybe a technical question On the back of that, just thinking about things, I was very interested in your oil thermal cracking opportunity. But Is there still a possibility you could look at in situ hydrogen The oxidation of hydrocarbons in the reservoir, so you don't actually have to produce in service and capture the carbon surfaces. Maybe a second technical question there. Sorry. Thanks. Well, thank you for the kind words, Jason. And yes, so 2 hydrogen questions. 1, Do we have a market share in mind? Is there anything comparable to our market share in oil? Or and secondly, the technical issue about in situ Conversion of hydrocarbons to hydrogen. With regard to thank you, Jason. With regard to in situ carbon capture, we are looking As part of our R and D program, this is an area that we are looking at. It is challenging, and the cost is an important element that we are looking at in comparison to sequestration, carbon capture and sequestration. So this is part of the R and D Work that is currently going on. As I said, we a lot of our R and D work is around sustainability and reducing carbon emissions And what can we do to capitalize on technology to reduce our costs, which will make these projects More favorable economically for us to pursue. Now hydrogen, as I said, is a very interesting Market for us, and we are as I said, we are looking currently at the markets. And Basically, we're looking for offtake agreements from different markets. Our program now right now look at 20.30 In terms of production, we anticipate that we can expand our hydrogen significantly in the future Depending on these markets and the availability the key is the availability of these markets. The Kingdom and Saudi Aramco is Benefiting a lot, as I say, from our advantage in terms of reserves and gas, advantage of our low cost of gas, the advantage of Availability of structure for sequestration. We do have major large significant aquifers to sequester And some of them very prolific in terms of porosity and permeability. So we do have an advantage. Now it all depends on the Currently, we are looking at the markets and finding out the appetite for blue hydrogen. And based on that, we will be planning accordingly. Of course, we are similar to either we're looking to capture Big percentage of that market, as I said, we have an advantage. So if you're looking for a hard number for a Market share, Jason, we don't have one. I always like to go back and talk about our When we look at projects, we're not going after necessarily market share, we're going after value. But like Amin explained, we have the competitive advantage to make us capture a big part of this market. But this market is still emerging And we're certainly doing our homework and our the Parts that are in our control to be able to take advantage or capitalize on our competitive advantage to capture this growth. And we'll see where this takes us. But again, fiscal and financial discipline, especially when it comes to Capital Investments. We are ready to grow our blue hydrogen capacity by date But the market is there. Without offtake agreements, it will be difficult to, I mean, expand that program significantly, but all of that will be we are going to be in a much better position early next year in terms of nabbing all markets and capturing this opportunity. Okay. Thanks, Graham. Thanks very much for your time. Thank you, Jason. Very exciting area. And the final question, a special thank you to you, Indica, for your patience is Indica from Alistairmar Capital. Thank you very much. Yes, thank you very much and congratulations for the very good very strong results. I have two questions very quickly. One is recent announcement on the Kasim Petroleum Distribution technical issue. I just wanted to understand whether it is kind of isolated issue or probably it requires maybe company wide Kind of maintenance of all facilities. That's the first question. And the second one, basically the progress of Aramco Retail Fuel Business, can you just shed some light on the progress right now? Yes. Thank you, Andik. The interruption in the same is a minor interruption that impacted the substation, I mean, the bulk plan that we have because of the control panel on a substation took us This is 48 hours to resume full operation from the bulk plant after the issue on the substation. So it is an isolated incident, and it did not impact Have a major impact on our customers in terms of availing gasoline and diesel, but we were able to quickly Resume the operation and the bulk plan. Of course, retail business, we do have a joint venture with Total. It's going very well. We are progressing very in a speedy way in terms of capitalizing on the opportunity to have a retail business where we have our Saudi Aramco logo on these But it is progressing very well in as a JV with Total Energy. I'm sorry, do we have like something, the planned number of stations, let's say by 2025? We have so let me first remind you that we're actually in retail Globally, we're in retail in the U. S. We've got a few 1,000 stations. We're in retail in China, where we actually co brand with Esso and Sinopec. And we're entering into retail in Saudi Arabia. We're actually already into retail, but we're introducing our brand over the next, Let's say quarter or later this year, we'll introduce the first couple of stations with the Aramco brand. Do we have a target for the brands? We already have the retail network. We have A little bit over 200 or about 250 stations through this joint venture that we have with Total. We are rebranding, so slowly but surely introducing both the Saudi Aramco and Total Brands in Kingdom through this joint venture. And But again, we're disciplined even there as the market we're taking it a step at a time. We're choosing the best locations. We'll prioritize those locations to introduce first, and we'll adjust our plans accordingly when we see the market reaction to