Hello everyone. Good afternoon. My name is Saleh Alghamdi. I'm the Investor Relations Manager at Luberef. It is my pleasure to welcome you in today's audio webcast, where we will be discussing our performance for the first half of 2026. I'm also pleased to be joined virtually by our President and Chief Executive Officer, Mr. Samer Al-Hokail, and here with me in Jeddah, our Chief Financial Officer, Mr. Saud Kamakhi. Our session will begin with a presentation highlighting Luberef's performance for H1 2026, followed by a Q&A session. Please note this webcast is being recorded for future reference. Before we dive into the presentation, I would like to draw your attention to our cautionary statement. During today's presentation, we may make forward-looking statements that refer to estimates, plans, and expectations. Actual results and outcomes may differ materially due to factors stated in the slide.
With that out of the way, I will now hand over the call to our President and CEO, Mr. Samer Al-Hokail.
Hey, everyone. [Non-English content ] everyone. Welcome to Luberef's second earnings call for 2026, and thank you for joining. We value your participation today and look forward to sharing an overview of our business highlights, strategic progress, and financial results. This year marks a significant milestone for Luberef as we celebrate our 50th anniversary. Over the past five decades, the company has built a strong track record of operational excellence, safe and reliable operations, and disciplined execution. As we celebrate this milestone, we remain focused on building on that legacy, keeping the world in motion, and positioning Luberef for its next phase of growth. Building on this strong foundation, the second quarter recorded another notable milestone for Luberef as we delivered one of the highest net income and crack margins in the company's history. This achievement reflects strong operational performance and our ability to capitalize on favorable market conditions.
Safety remains our highest priority throughout the quarter. We sustained a total recordable incident rate of zero and surpassed 44.4 million man-hours without a lost time injury. While maintaining mechanical availability of 100%. These results underscore the strength of our safety-first culture and disciplined execution of our operating model. The company advanced its localization effort by signing an agreement with APAR Industries Middle East Limited to supply base oil for its manufacturing operations within the LubeHub value park in Yanbu. The agreement represents an important step in enabling APAR manufacturing transformer oils and a broad portfolio of specialty oils within the Kingdom, reinforcing the LubeHub's position as a catalyst of downstream industrial development while contributing to local value creation and strengthening the Kingdom's industrial ecosystem.
Building on that commitment to enhancing local content in the Kingdom,` we launched ASASNA program, which is the name of the program, which aims to promote local sourcing, strengthening the supply ecosystem, and develop national capabilities across our operations. The program embedded local content as a strategic pillar across Luberef's value chain, advancing Saudi localization agenda while fostering long-term partnerships within the Kingdom suppliers, reinforcing our contribution to the Kingdom's Vision 2030. Furthermore, we signed a Memorandum of Understanding to explore carbon-related initiatives supporting carbon market development and emissions reduction in line with the sustainability ambition of Saudi Green Initiative. We continued to optimize the value chain of export through ongoing logistic initiatives. These efforts enhance supply chain efficiencies, strengthened our competitive cost position, and contribute to improved profitability.
Our board of directors has approved an interim dividend of SAR 4 per share for the first half of 2026, in line with Luberef's dividend policy, reflecting the company's strong financial performance and commitment to delivering shareholder returns. Our commitment to transparency and corporate excellence was recognized during the quarter as Luberef received the Investor Relations Program of the Year 2025 Mid-Cap award for the second consecutive year. This achievement is a testament of our continued focus on maintaining the highest standards of investor relations and fostering open and consistent engagement with the investor community. We remain confident in Luberef's strategy and our ability to execute it while fortifying the company's long-term competitive position. Growth II reached 73% overall completion. Building on this progress, procurement activities accelerated during the quarter to sustain the project execution phase.
The current favorable pricing environment and feedstock supplier presented an opportunity to create additional value. We rescheduled the plant shutdown to October, enabling us to extend production during a period of strong base oil pricing and market dynamics. During the fourth quarter, both shutdown and ongoing activities are expected to increase the project's progress by 10%, driving the total percentage to 83%. Construction scope related to vacuum distillation unit will be subject to completion in the first half of 2027, followed by the project commissioning. Our base oil crack margins for the first half of 2026 reached SAR 2,732 per metric ton, the highest level in Luberef history. This reflects an exceptionally strong market environment, with crack margins increasing by 49% compared with the same period last year, and standing 52% above the 10-year historical average.
Supported by strong performance and disciplined execution, these healthy market conditions enable us to deliver record financial results during the period. I will now hand it over to our CFO, who will be walking us through the financial performance, and I'm looking forward for the Q&A session.
Thank you, Mr. Samer. I extend a warm welcome to you all, and I'm delighted to guide you through our H1 2026 financial results and provide insight into the guidance for remaining financial year. During the first half of 2026, the company delivered an exceptional financial performance, supported by a favorable market environment and strong pricing dynamics. This strong performance was underpinned by a record high base oil crack margin of SAR 2,732 per metric ton, representing an increase of 49% compared with the same period last year. The significant expansion in margins provided a solid foundation for the company's earnings growth during the period. As a result, EBITDA reached SAR 1,184 million, representing an increase of 94% year-over-year, while net income amounted to SAR 992 million, with an increase of 113% compared to the same period last year.
These results demonstrate our ability to capture value in different market conditions, and reflect the resilience and strength of our operating model. Our capital program continues to focus on supporting the company's strategic growth priorities, with total spending of SAR 302 million, of which SAR 119 million was allocated to the Growth II projects, while turnaround commitments contributed to SAR 133 million. Despite this continued investment, the company generated strong cash flows during the period. Supported by favorable working capital movement, free cash flow increased by 346% compared to the same period last year, further reinforcing the company's strong financial position and financial flexibility. Supported by this strong cash generation, the company closed the first half with a robust financial position, maintaining a negative gearing ratio of 20% while delivering a 33% ROACE.
Together, these metrics reflect the efficient utilization of our asset base, a disciplined capital structure, and a resilient balance sheet that provide a solid foundation for future growth. Net income for the first half of 2026 reached SAR 992 million, compared to SAR 467 million for the same period last year, representing a 113% year-on-year increase and the highest value in the company's history for a six-month period. The strong performance was primarily driven by a higher base oil crack margin, as Luberef successfully capitalized on market conditions through effective operational management and strong safety and reliability performance, enabling the company to benefit from the higher market prices and strong crack margins.
Turning to our cash position, we began the year with a cash balance of approximately SAR 1,373 million and generated SAR 1 billion in free cash flow during the first half, reflecting the strength of our operating performance and disciplined working capital management. During the period, we invested SAR 302 million in capital expenditures to support our strategic growth initiatives while returning SAR 589 million to shareholders through dividends for the second half of 2025. As a result, we closed the first half of 2026 with a cash balance of SAR 1,750 million, maintaining a strong liquidity position and financial flexibility to support both our growth strategy and shareholder returns. As we move forward, base oil production for the year is still projected at 1.15 million metric tons of base oil.
In line with the recent development in Bab el-Mandeb, export sales have been diverted to alternative routes, and Growth II shutdown is rescheduled to October in order to capture the current attractive business environments, while the range of CapEx guidance remains the same. Reflecting our strong financial performance and healthy cash generation, our board of directors has approved an interim dividend of SAR 4 per share for the first half of 2026, according to the Luberef dividend policy. Other guidance factors stated in the slide remain valid, including premiums and prices indices. This quarter demonstrates the resilience of our business and the strength of our financial and operational performance. Despite the evolving regional environment, we remain confident in our ability to adapt, execute our strategy with discipline, and capitalize on opportunities.
We are well-positioned to sustain strong profitability, maintain a healthy balance sheet, and continue investing in our long-term growth priorities. With that, we move to the Q&A session that will be moderated by Saleh.
Thank you, Saud. We will now begin our Q&A session. As usual, kindly start by introducing yourself and your place of work, followed by the question, whether it is verbally or by type. I see Mr. Iyad Ghulam from SNB Capital. Could you please step forward?
[Non-English content] First of all, congratulations on the very strong results. I have two questions. The first one is regarding the current situation of Bab el-Mandeb and how things are. I know things are still evolving, and it is not very clear. You mentioned, Saud, that you are rerouting to other destinations. I just want to understand how is the picture or the ability to export volumes. The second question is about the byproducts, crack margins. Last quarter, it was really strong, but apparently this quarter it was a drag on the earnings. How should we think about it, and what was the reason behind the weak numbers in Q2?
Thank you.
If I may, Saleh, take this on Bab el-Mandeb. Thanks for the question, Iyad. On Bab el-Mandeb, it still remains very continuous in terms of aimed, heightened, and regional tensions. We do have several alternatives. It is part of our enterprise risk management that we review on a monthly basis. The alternatives are different routes, some of which are the Cape of Good Hope, which are in action as we speak. We would actually truck even more locally and sell locally, and this should offset it. Nevertheless, ships are moving through the Bab el-Mandeb. Our ships are being nominated and accepted as well in the recent few days. It is fluid, and it evolves as we speak. On the second question, I think maybe Saud can handle this.
Thank you, Iyad, first of all, for your attendance. Yes, I think from a byproduct perspective, in second quarter, it was lower. As you know, those are related also to the fuel prices and the drop also that happened during our feedstock and crude, which our byproducts such as diesel also follow the same trend. Therefore, yes, we enjoyed a high margin during quarter one, quarter two, maybe we came back to the regular situation in normal years where we have a lower margin in the byproduct. That have one impact on our margin, but not that much impact compared in our final results.
If I just jump in here, Saud. You mentioned how do you want to think about it. I think the way is, Iyad, is the effect of crude oil prices and fuel oil prices to byproducts is much quicker and faster. It's a linear relationship, in a way, in the market than your base oils. The base oils tend to lag. If those prices are reduced, the byproducts are swinging as well.
It's clear. Thank you so much. Appreciate it.
Thank you, Iyad. I see next on the table, Mr. Ricardo from Morgan Stanley. Could you please step forward?
Hello. Good afternoon. Can you hear me?
Yes, you are audible loud and clear, Ricardo.
Perfect. Thank you very much. A couple of questions, if I may, more on the marketing side of things. When you mention some of the logistics issues that are facing it now, could we expect any changes on the end markets that you're selling to? A change on the exports, on the destinations, and also on the usual mix between domestic and exports. The second one, just given the current base oil prices. When we look at the normal premium that you can sell your products at the domestic market, have you seen any changes on the second quarter and in July, meaning because of prices being much higher than the usual prices? Are you charging a lower premium compared to that $150 through the cycle? Thank you.
I will repeat the questions. The first one is related to any change in the destinations we are selling to. Basically, the split between the destination and the export.
Yes.
The second question is related to the premium that we apply locally.
Yes, exactly.
Mr. President?
Right. Okay. Ricardo, good to have you always and good questions as well. On the split, we try to maximize local given what's happening. As you are aware, local has just a cap of demand. As long as we can create demand, then that's there. We kind of fill that bucket as much as we can, then we try to export. Yes, we are always in search for new destinations, far destinations as well, be it Europe or even the Americas. Our usual suspect destinations are in the Far East and the AG, some of which are going through the Cape of Good Hope, which requires maybe a working capital kind of arrangement with the customer. Some of which have offered to pick up, actually, the extra freight on that, and some we can negotiate in between. This is the nature of the industry.
On the premiums, maybe I'll have this with the CFO. Let me know if I answered the question fully, Ricardo.
Right. Thank you, Abdulaziz. For the second question, Ricardo, what mentioned by our President and CEO right now is keeping that mix as a continuous target for Luberef. We are going to maximize the local. With that, we are also within the range of our premium that we always share. We did not see any major changes within that premium. Despite the prices may be higher during that quarter comparing to the previous one, but the premium is within that range, where we're trying to also ensure that our product availability for our local customers is there. We are keeping and maintaining also the mix of 70%, 30% during the period.
That was super clear. Thank you. If I may just follow- up on one of the points about the Cape of Good Hope. What would be the incremental cost per ton on shipping via there versus just a normal Red Sea route?
So-
Oh.
If you want.
I don't have it on top of my head, but maybe a CFO. Definitely it is higher given what's happening now. I'm just looking at even freight rates and crude oil. It just went tremendously high. Not only double, but even more than that. In our case, I'll have a CFO to answer this.
Yeah. As mentioned before, that there is an extra charge on that. We are looking at rates that maybe started 100+ on the freight rate per metric ton. It depends on its destination and other logistic factors. However, that is being now looked at with the customers, and we will see how that will impact. Maybe a delay in reaching to the customer, 30 days or so. At the end, we will try to ensure activate all our mitigation process that we already have in place to reach to our customer anywhere, inshallah.
Okay. Thank you very much.
You're welcome, Ricardo. Good always to have you. Next, we have Mr. Mohammed Al-Ghanias. Apologies if I mispronounce the name. Mr. Mohammed, could you please step forward?
[Non-English content ] No, on the contrary, you spelled it very right. Thank you.
[Non-English content]
Thanks, Mr. Samer and Mr. Saud for the call and for Al Rajhi Capital, and congratulations for the great results. If you could please shed some light on the Jazan projects, third quarter. I know it's still very initial phase, but I would really appreciate if you can just give us an update on that. Also, on second question that I have on dividend distribution. Mashallah, profitability has been very strong, and historically profitability of the company, of Luberef, has been strong. As you showed, gearing is - 20% right now. You have a lot of cash. You have, mashallah, very strong, or I would say excess capital given the asset-light business model that you have compared to other normal or prevalent refineries. Doesn't this give you some room to increase really payout and increase dividends somehow to make capital more efficient and also increase return?
Because as you know, as mashallah you grow on earnings, you will have a lot of accumulated capital, which could push returns lower. At the end of the day, mashallah, banks are open. I'm sure they would be really happy to finance Luberef growth plans at very decent spread.
Thank you, Mohammed. I'm just going to make sure I repeat the questions for the sake of our audience. The first question was related to the status of project Jazan, which is to produce Group III+. I believe this will best be answered by the President and CEO. The second question is related to the why or what dictates the range of payout in relation with the dividend policy. Mr. President, would you like to step forward?
Yeah. Sure. Thank you, Saleh. Thank you, Mohammed, for the question and the convincing argument you're putting through on the dividends, which will be hopefully entertained through this Q&A. We have a MoU signed with Aramco to study the facility of and producing Group III+ in Jazan. The unconverted oil that is the feed going for that facility, and it will upgrade a low-value product to a very high-value product. This whole thing is expected to have an FID sometime in 2027, first half in 2027. Not sometime, but definitely the first half of 2027. Currently, we are in the pre-FEED, which is the pre-engineering capability. We're looking at not only the economics, we're looking at utilities. We've done the feasibility of locations.
The nature of these projects, which are quite intensive in engineering, front-ended, it takes six months for that to be done, then maybe another year after the FID for it to be engineered, then perhaps a year and a half for construction and procurement, if all is okay and heaven is good, and everything is in a good shape. Of course, given what's happening geopolitically, things do delay. It should not delay on the engineering side. The expectation is first half of 2027, and we would provide guidance on that. On your second question, I agree with you. Yes, there is a good gearing, a good movement of cash. Cash conversion is high and what have you. The policy is from 60%-80%.
We could always give more, also we need to manage expectations and also the CapEx that will be spent in the future on those projects. We could also lever up, it gives us optionality on that ability. Maybe Saud can even elaborate more on that end.
What you have mentioned, Mr. President, is right, and thank you, Mohammed, for that question. This is one of the things that we always evaluating at global sphere. Future project is also important to consider because they play a role as we have low gearing right now. Opportunities are always there. With the moving of the future project, those projects will be assessed to be on debt to equity basis based on the environment and the interest rate and all of the other factors that will help us with the low gearing ratio. We have a room there to leverage, we always going to keep you posted once we have more information about that and moving forward to that direction. Yes, we have that opportunity so far due to our current robust balance sheet.
Thank you. Thanks.
Thank you, Mohammed. We have two questions that are being typed. I will take them right now. The first one from Mr. Emad from Basra, Germany. Actually, Emad has two questions. I will read them out loud. One, you called it a record crack margin. An investor seeing a record will assume it cannot last, and eventually the share price will fall. What would you want them to understand? Second, you moved the Growth II shutdown to October so you could keep selling at those margins. If margins are still strong in October, would you look at that timing again?
Maybe I can take the first question, or Abdulaziz, do you want to go?
Yeah, proceed. That's fine.
For the first question, Emad, yes, we mentioned that is a record crack margin because this is the current environment. We always refer back to the historic crack margin that we have. I think the share price, this is something that will be determined by the market. It's not by the company. I think here we do not advise to any direction here on our share sales. This is all that shares will be evaluated not only due to this current market environment, but also for our future project that we are looking to invest in and expected in the future. This is what we want to maybe answer this question by that. For the second question of moving the shutdown to October on if this margin.
Yeah
Maybe, Abdulaziz, you want to take that?
Yes, will do. Back to the margins, Emad, thanks for the question. I think, yeah, it's always the case when margins are low, they're not going to be always low. I mean, up, they're not going to be always at the high side. They will go down. If they went down on the lowest they will, the market would turn at some point. What's important here, Emad, is management involvement to keep the facility up and running and reliable and safe so we can enjoy good margins when the market turns, but also sustain cash flow even if the margins are low. The share price is always just a byproduct of that activity. On the whether we are able to, or whether we think of delaying the shutdown in October or not.
I think part of that is being an agile organization by creating value and capturing value during volatile markets and volatile conditions. I think we've demonstrated doing that. If the opportunity presents itself to do so, I think part of the agility and to move fast as an organization, we've demonstrated that might be an option on the table. It will be on the expense of something else. We'll have to weigh it and analyze it and make a strategic decision. I will have to make that decision going forward by a consensus with the management team. Of course, our customers, we have obligations with our customers, with their nominations, with their orders. We'll have to put all that into consideration. Thank you.
Thank you, Mr. President. There's another typed question from Mr. Naif Alghaith . Congrats on a strong quarter. I have a question on the turnaround. Did Aramco go through with their planned shutdown, and do you see room to move the turnaround to 2027? The second question is what drove the decline in Group I assume, Naif, you're referring to Group I compared to Group II prices, given that during the crisis they were closely aligned. Question number one is about the turnaround schedule. The second one is related to the market dynamics. Mr. President, would you like to answer one?
You can take this, yes, Saleh.
Okay. Thank you, Mr. President. Naif, to answer your question, we are not in a place to speak on behalf of Aramco in regards to this, whether they changed their schedule or not. Do we see room to move the turnaround to 2027? I believe this is repeated from Mr. Ahmad from Basra, and the President covered this part. Moving to your question related to the market dynamics. If we take a step back in Q1, both groups were closely aligned due to the fact that the whole market suffered from a shortage in base oil supply. As we moved further into quarter two, some normalization happened in Group I. Group II, on the other hand, is mostly still strong. The demand is strong there due to the fact that it is partially compensating for the severe shortage in Group III.
Mainly that is what is keeping the Group II prices relatively stronger during the period while Group I started to normalize. I hope I answered your question. Now moving again to the live participants. Mr. Taha Javed, please step forward.
Yeah. Thank you so much.
Mr. Taha
Thank you so much, management. A couple of questions. One was around this Group II related shutdown in October or whenever you feel it's more feasible, just the timing of it, how many days will this shutdown last? The remaining CapEx that will go into this. I think in the slide you showed SAR 300 million to SAR 350 million. Is this the remaining CapEx that is left regarding the expansion?
Okay. The questions, number one is straightforward. The shutdown duration is a one-month period, inshallah. The same duration that was moved from August to October. Coming to the CapEx question-
For our CapEx, Mr. Javed, as we mentioned, that we spend by the end of Q2 around SAR 119 million allocated for this project. That will bring the total CapEx amount during, since we begin, as around SAR 384 million. As you know, the budget for that project is around SAR 750 million. What we saw in the slide earlier, that the guidance for this year is around between SAR 300 million- SAR 350 million, where we are expecting to be within that guidance during the next period. We are talking about remaining in the second half from SAR 180 million- SAR 230 million. That would close that additional amount. We're left with around SAR 100 million- SAR 150 million for the next year. I hope that answered your question.
It does. Thank you so much. Just on the byproducts, obviously Q2, I guess that declined a lot. What are the trends for July? Because diesel prices are up a lot, I think, at least during the recent month. If you can just guide a little bit on how you see byproducts for Q3.
Could you please repeat the question? Mr. Taha, your voice is a bit far away.
Apologies. Just wanted to know byproducts margins. I think byproducts pricing for Q2 was on the lower side. Any trends that you're seeing for Q3? July, I think diesel at least is up a lot, diesel prices. How do you see Q3 byproducts pricing moving forward?
Naif, if we look at it in general, Mr. Javed, that this is a very volatile market, especially on those type of byproducts. Giving future direction or expectation is not an easy way to do it right now. However, we see that movement of those byproducts usually go with the oil prices, where there's a lot of relationship between them. We saw some volatility on that.
Maybe it's not our role here to give that at this point. This is at least how we see it in the next quarter.
Great. Thank you so much, and best wishes for the year. Thank you.
Thank you, Mr. Javed. Moving to Mr. Nawaf Al Nafisee. Mr. Nawaf, please step forward. Mr. Nawaf? Oh, okay. I will come back to you later, Mr. Nawaf. Moving to Mr. Ildar Khaziev, HSBC. Mr. Ildar?
Yes. Thank you so much, and congratulations on very strong numbers. I have a question about the volatility of the HFO prices. In the past, when we have seen this happening in the market, you have reported inventory revaluation gains and losses. Can you tell us whether there have been anything like this in 1Q and 2Q? If yes, could you possibly quantify those gains and losses? Thank you so much.
Mr. Khaziev, I believe you're referring to the inventory valuation in the financial statements.
Yes.
I will leave it to Mr. Kamakhi to answer this.
Thank you, Mr. Ildar, and thank you for your great question. Yes. We have noticed, as you know, that during end of quarter one, feedstock prices have increased dramatically during March after all the geopolitical events that happened starting 28th of February. That during the second quarter, we have noticed also a dramatic normalization of that feed prices during Q2. Comparing between two quarters, yes, there have been already impact from the inventory revaluation because of the drop of that feedstock. I don't have a current figure right now in front of me exactly. We expect that between $40 million-$50 million maybe impact. That's where you can see a little bit difference from net income perspective comparing to our sales.
Thank you very much. Should I assume that there was a similar opposite impact in 1Q of a similar magnitude?
There was an impact, but maybe not with the same value. There was an impact.
Okay. Thank you so much.
Thank you.
Thank you, Ildar. Always good to speak with you. Mr. Abdullah Alwehaibi . Mr. Abdullah, please step forward.
Yes. Hello, am I audible?
Yes, Abdullah. Loud and clear.
Okay. Thank you, management, for the presentation and for the opportunity to ask question. I have two question on my side. The first one is regarding the rerouting from Bab el-Mandeb. Do you expect this to affect your volumes hold in the second half? How much do you expect the logistic cost to affect your crack margin? Second is, it would be really informative if you could give us some color on the crack margin of Group III and how much it differs from your current portfolio of base oil. For the last five or 10 years, I believe this would be really important to understand how much Group III differs in terms of profitability. Thank you. That's my question.
Thank you, Abdullah. The question one is related to the Bab el-Mandeb situation. If quantifiable, how can it affect our performance? The second question is about the spread of Group III relevant to the other groups of base oil. Mr. President, would you like to answer?
Oh, yes. Thank you, Abdullah, for the questions. Probably to help you think through this, it's a longer route. On your models, probably you want to add an additional 45- 60 days. That's a good way to calculate and then maybe calculate way back on how would that affect the crack margin. At the end, it's a working capital. The freight, as I mentioned, is negotiated between the both. Some will actually pick up the full freight. Some will just negotiate on that. You could put that assumption there in the models and work your way through on the cracks on that. That answers the question itself. I don't foresee a huge change. Definitely there is a change because it's a longer route. How long that will stay for? You could assume maybe, I'm not sure how.
We are not really vested in the geopolitics. Nobody knows. It is almost like a crystal ball. Every day is evolving. You could put that as well in the model for that. On the crack margins on Group III, yes, usually Group III is sold higher than I and II. Sometimes the market really rewards bright stock even higher than Group III in Europe. It happened. I have seen it actually. It is interesting market condition. I will leave that more with the CFO on how would you want to think about Group III. I think we will be giving guidance very soon on the production of Group III and all the groups, or at least the production on the facility itself.
Thank you, Mr. President. I think, yes, Abdullah, for your question for the first one, also some of our customers starting to pick up the product as a FOB. That is also a realized gain immediately, even without taking that out. We have that rerouting option and also pick up from our port. For the second question, I really see that two different views, by the way, here. If we are talking before the geopolitical tension escalation, we usually see that crack margin have a SAR 200- SAR 300 per metric ton premium. In the last few months that we saw that number have been increasing dramatically, where at certain point it reach around $1,000 over Group II, if we are talking here. That because of the limited supply in the market, we can have around 2 million in nameplate capacity during in the supply perspective.
That impacted also the availability of that product and the demand was higher on that area. We see the different gap in Group III+. I hope that answer the question, Abdullah.
That is clear. Thank you. Thank you, management.
Good. Thank you. I'm going to take one written question and then move on to the next live audience. A question by Mr. Abd Al-Hakimi. Given that Jeddah is now extended, do you think you will be able to reach 1.6 million base oil production capacity in Yanbu? Another, I think sub-question, would you be able to give an update on Jazan potential project and what kind of CapEx are you looking at? I can answer this question if you like, Mr. President.
Yes, Saleh, proceed, please.
Okay. Mr. Abd Al, in terms of nameplate capacity, the estimated total production, including Jeddah and Yanbu after Growth II, is going to fall in the range of 1.5- 1.55 million metric tons, give or take. Keep in mind that, and I'm sure that you're familiar with this, we don't maximize the Group I production out of Yanbu. This would leave theoretically the production a little bit beneath 1.5 million metric tons of base oil with a split of approximately 78%-80% of Group I, 10% Group II, 10% Group III. That is what the ultimate composition would look like, give or take. Related to Jazan, Mr. President shed the light on this. The project is currently at pre-engineering phases, meaning that all of the product deliverables are within a ±30% or even 40% numbers. There is not a solid, a structured CapEx or capacity identified yet.
It's still being subject to engineering evaluation before taking the project to the next phase. We are happy to discuss this further, if you wish, after the earnings call. Moving back again to the live audience, we have Mr. Iran Jan from Derayah Financial. Mr. Iran Jan, could you please step forward?
Hello.
Hi, Mr. Iran Jan.
Am I audible?
Yes, you are.
Yeah, just if I may ask two brief questions. The first one is on your alliance sales. Just wondering if these logistical challenges had an impact on those sales. The second one is once again on diesel. I was just wondering whether there was any changes in the volume sold during Q2 versus Q1.
Sorry, Mr. Iran Jan, I did not get the second question. Let me repeat the first one. I would like you please to repeat the second one. The first one, you're talking about the alliance sales and whether
Yes
or not they were impacted. Could you please repeat the second question?
The second question is regarding the diesel volumes, whether those volumes, there was a big change in Q2 versus Q1, or was it similar?
For the first question-
You can take this, yeah, Saleh, if you want.
Yeah. Okay. For that, Saleh will answer.
Sorry. For the first question, the challenges that we face during the current situation, as we mentioned that earlier, before. The challenges has been already, we have the mitigation plan. We have that we go a different routing, we do not see that much impact on that in our next quarter, that huge impact, because we already started to activate these plans.
Thank you, Mr. Saud. For the second question, typically, diesel quantities do not change much month-to-month due to the nature of the refinery. You have a cap or a typical production quantity or percentage of diesel. You do not get that flexibility to severely maximize that on the expense of base oil. The typical guidance quarter-to-quarter on diesel term does not change significantly.
Okay. Regarding coming back to the diesel spreads, perhaps, do you enjoy the same spreads maybe your counterparts in the West enjoy when it comes to diesel? Because in those regions, there is a big shortage of diesel. Here, I believe your diesel is indexed to more regional indices. Therefore, do you enjoy the same sort of very high spread some of the refiners in the West enjoy, or is it much smaller spread?
Mr. Iran Jan, this is a good question. Our sales of diesel also follow the indices that we are having related to our customers and the sales in the region. That margins, as we saw in the first quarter, has been captured due to the higher prices in those indices follow the price of diesel globally also.
Okay. Thank you.
Thank you. Moving to Mr. Aakarsh Tomar. Mr. Aakarsh, would you please step forward?
Hi. Thank you for the opportunity to ask the question, and thank you for the detailed presentation. This is Aakarsh Tomar from SICO Investment Bank, Bahrain. Congratulations on a great set of results. My question is broadly on the shutdown, but it has parts to it. Firstly, I wanted to understand, you had a shutdown last year in fourth quarter as well, and then one month shutdown is planned for the remainder of the year. After this shutdown, when once this is done, the one month in October, when is the big shutdown, which is of similar scale of a month? When can we expect the next shutdown to come? That's the first one. Secondly, earlier it was expected that this shutdown will kind of coincide with the new Growth II commissioning.
The plant will not remain closed for the commissioning of the new Growth phase. Now that phase has been delayed to 2027, do we expect some closure of the plant in 2027 for the new capacity to come online? These two things.
Just to make sure I address your question, I think that you need to allow me to do some differentiation here. The shutdown is basically a general terminology, but let me walk you through the details a bit. The shutdown that took place in end of 2025, that's what we operationally refer to as a turnaround. It's an event that takes place every 5- 6 years, a typical practice in refineries, where the whole plant is taking into shutdown. No production, no intermediate stream, nothing. This is the event that took place. Despite whether we have a Growth or not, we have to go through that exercise every once in a while.
The shutdown that we are referring to in this context that was rescheduled from August to October, is to address the scope that is related to the expansion project, which is mainly in three units, in vacuum distillation unit, hydrocracker, and isodewaxing unit. Due to multiple decisions, one of which was addressed by the President, is to capture the current favorable market environment. The shutdown was rescheduled to October, in which we will address the scope of the hydrocracker and isodewaxing unit. Next remains the scope related to the vacuum distillation unit, which will take place sometime in H1 2027. I hope I addressed your question. I think you answered just one thing related. You did mention something related to when will the big shutdown happens again. I want to go back to my first idea.
If you are referring to a turnaround, a turnaround is an event that takes place every 5-6 years, and this will happen. You can't take it for granted. That's my point. The shutdowns that we are talking about in today's earnings call's context are specifically for the Growth II project. I hope I answered your question.
Thank you so much. That makes it perfectly clear.
Let me just maybe, if I may, on that turnaround, what we mean by turnaround is test and inspection. We'll have to test all the equipment and inspect them. One also thing is, when we have an equipment with catalytic reaction, then this will have to go down every two and a half years just to change the catalyst as they get consumed through the reaction. That's also well-known in the industry. We try to time them together every other batch. If it's at every five years, we do a two year and a half, maybe for two weeks, three weeks, it depends what is the scope, then a major one later on.
Thank you very much. That's very helpful, and that makes it very clear. If I may follow up on this, for expansion-related turnaround that you mentioned, one is the upcoming one in October, and then one you said in first half of 2027. That will again be a month or so, or is that any different?
More guidance will be cleared later in the year. Currently, there are some scenarios to be discussed. We don't have a clear picture of what is the time frame or the details of the H1 2027 highlights.
Thank you very much. That's very helpful. I have one more question. If you will allow me, I'll ask now, or I'll get back in queue.
Please. Step forward. What do you have?
Thank you so much. Just on one follow-up to the previous questions. As of Q1, your by-product spreads are generally by-product margins are very low, as we have discussed in the past on these calls. Q1 was an exception where your spreads, by-product spreads, crack margins were $70 per ton. Can you give us the number for the second quarter?
Yeah. For the second quarter, it's -$12 per metric ton. That's the by-product crack margin.
Okay. Thank you very much. That's very helpful, all the best for the future.
You are most welcome. Mr. Fawad Khan, Alinma Capital Could you please step forward?
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No worries. Thanks a lot for the opportunity to ask question and many congratulations on the strong set of results. I have three questions. Effectively, are we expecting the Group III production to start sometime in October, November with the shutdown of one month, or we should expect Group III production to start sometime in first half 2027, whenever you have the vacuum distillation unit expanded?
Okay. That's the first question.
Second question is on the inventory evaluation. You have mentioned during the call that it was around U.S. dollar $40 million-$50 million impact. Would there be any impact in third quarter just because of the inventory write-down at the end of the second quarter? Secondly, which product, whether it's related to byproduct or feedstock revaluation, this revaluation exercise refers to?
Okay, the third?
Third is basically a more kind of a general question. How should we look at the crack margin for the rest of the year? Let's assume if the situation remains like this and let's suppose in the scenario the situation improve from here on, how should we see crack margin normalizing into the 2027 or 2028?
First question is related to the shutdown in October and whether or not Group III production would follow. Mr. President, would you like to answer this?
Yeah, that's right.
All right.
Okay. Very well. That's an important part of our growth story, is to produce Group III, then move to Group III+ and become niche and become a one-stop shop. We aspire to do so, in October. I will give further guidance during that shutdown or maybe before that shutdown, of course, about Group III production and perhaps scale it up in H1 2027. The nature of the business, again, just to help you think through this, it's not like a refinery where you're able to right away ramp up the refinery to produce fuels and sell it and trade it. It's just much liquid. In our case, we have to line up our marketing plans, our customer plans, what they're able to lift and not. We can go a little bit spot, but the market isn't as liquid as the fuels.
A lot of planning that needs to be done. Therefore, scaling up Group III will take time to hit the nameplate, if any, if it would ever hit the nameplate in that area. That's our aspiration. We've done that in the past, and I'm sure we could do it in the future. For the inventories, I think I'll leave the CFO and the crack margins as well, Yasser, maybe you or Saleh can handle.
Thank you, Mr. President. For the second question, the inventory evaluation, the question was about any expected impact in Q3.
Yes, sir. Since the inventory has been written down at the end of the second quarter, how should we see the third quarter impact?
Mr. Fawad, just to let you know that here we do that in a monthly basis. Our reevaluation of our inventory happens during monthly basis, where we see that because of the change in volatility, especially in our feedstock prices. Having mentioning that, as of July, maybe the volatility and the movement was not that severe comparing to the previous period, but it will depend on that movement if we see a huge increase to that or decrease from the current situation. Based on the forecast that we see, we do not see that future impact is coming from reevaluation of inventory. Similar, especially to Q2, where we started the quarter with a very high prices, and that has been dropped dramatically to the end of the quarter prices.
All right.
Okay.
Hope that answered the question. Is there anything else, Mr. Fawad?
Not on the second one. On the first one, I just need to ask the president. Why is the company not considering combining the two shutdown? Is it a technical requirement to go for the Isomerization and Hydrocracking changes first and then follow- up with the Vacuum Distillation VDU unit? Or there is-
Yes
some other consideration?
No, no, you're absolutely spot on. In general, there is a sequence that we need to follow, for us to maximize. It's more about capital efficiency and the way we will start up. You're right, it is a sequence that we need to proceed with. Hydrocracker, Isomerization. There is also others within the technical term of Hydrocracker and the Isomerization. Then the vacuum comes in afterwards.
Okay, sure. Thank you.
The last question from your side, Mr. Fawad Khan, which I will take. Afterwards, we will have to end the earnings call, but we would be happy to receive any questions or any inquiries afterwards. You were asking about the crack margin nature or environment towards the end of the year. Typically, Q3 and Q4, Mr. Khan, is times where seasonal demand starts to kick in reduction, I mean. It's the holiday season, natural events in multiple locations around the world which result in lesser demand. As a result, the prices do expect to reduce. All of the forecasts that we are receiving are suggesting such a trend as well.
However, given all of the events that happened from the beginning of the year, the end result in this forecast is expected to be still higher, Inshallah, than the pre-war prices or the pre-war forecast. I hope by this, I answered your question.
Yeah. Thank you, Saleh.
Okay. Thank you, Mr. Fawad Khan, and we apologize for stopping the call after this question due to the restrictions of time. All of the gentlemen in the room, we would be very happy to take the questions with you separately right after this one or over the course of the next week. Appreciate your attendance and participation, and looking forward to seeing you soon