OQ Gas Networks SAOG (OQGN) Earnings Call Transcript

[Foreign Language] Hello, and welcome. I'm Ahmed Al Khuzairi, Investor Relations. Thank you for joining us to discuss our Q3 2025 performance and results for the period ended 30th of September 2025. I will have a speak -- or I have a small brief in Arabic. [Foreign Language] The structure of the presentation will start by Engineer Mansoor Al Abdali, our company CEO, who will give you a brief about the company, followed by Engineer, Saif Al Hosni, our Chief Business, Commercial and Development, who will give you about the growth aspiration and Sultan Al Balushi, our acting CFO, who will highlight our financials. Before we start, I will refer you to Slide #2, which is a disclaimer. You can hear us correct?

Yes, we can hear you.

Thank you so much. Yes. So I will refer you to Slide #2, which contains the necessary disclaimer. The content of the presentation may include some forward-looking statements that include some risk or uncertainty or assumption. We are not committed to keep or maintain the same views in future if the market or external factors lead to some changes in our view over time. So to start, I will hand it over to Engineer, Mansoor.

Thank you very much, Ahmed, and I would like to welcome everyone in this call. We're very proud here to present to you the Q3 results of OQGM. And I will start by reminding ourselves on the company business model as well as the geographical presence of the various assets around the country. And then just I will ask Engineer, Khalifa Al Makhmari, our COO, to give us a high-level overview on performance and HSE statistics. Just to start with the OQGN model as we communicated in several occasions that OQGN is a publicly listed company regulated by APSR, Authority for Public Services Regulators to transport natural gas from the various suppliers, almost six in the country to more than 130 consumers. We run a long network of high-pressure pipeline system. And it's -- the length of our asset is almost 4,300 kilometers. They extend all the way from the far north in Buraimi to Salalah region. The total capacity of the network is exceeding 70 billion cubic meter of gas in totality. We are regulated and we have a concession agreement with the government of Oman signed and ratified by a Royal Decree in the year 2020, extending all the way to 2070. If we move on to the next slide because the other financial matters, Sultan will go through them in more details. And here, you can see the geographical presence of OQGN, where we're connecting all oil and gas producers to the network and on the other side, all industrial states and regions are connected to our network. We're even expanding the network as its business requires. And you can see beginning or end of last year, we have commissioned 177 kilometer debottlenecking South Grid to Salalah. And as we speak now, we are constructing a 42-inch pipeline from Fahud extending towards the Sohar for 190-plus kilometers. So you can see also the connected parties all IOCs operating in the country are connected to our network, including primarily PDO who supplies more than 60% of the gas supply. We also have BP, Oxy, Shell is also supplying to our network through the pipelines coming from PDO. And we have OQ being the mother company also have their own OQEP are connected to our network. We are proud that we have supplied more than 40 billion cubic metres last year for quarter 3, reached almost 36 billion cubic meter of natural gas to the various industries. So this is on a high level reminder on company business. We are, as I mentioned, regulated 50 years. We have current WACC, which started in the year 2024 ending 2027 at a rate of 7.79%. Okay. So, Khalifa, I'll hand over to you on key highlights.

Thank you, Mansoor . So as mentioned by our CEO, we are proud to have achieved so far 100% gas availability without any interruption to our customers by end of quarter 3. And in -- Shell will maintain such record at the end of the year. In terms of transported quantity already mentioned by our CEO, we're also proud in the HSE front that by end of quarter 3, we have achieved approximately 19.5 million hours without any LTIs. Also in the terms of AI, actually, we -- in terms of excellence, we have been conducting various POC trials for Right of Way surveillance using the satellite drones and the use of also fiber optic cables integrated system with the long range camera. And that's mainly to ensure a close monitoring of our network. It has been going through the POC, proof of concept, and we shall further refine the use of technologies in our business, in our network monitoring. We also have got -- pleased to inform that we have received the approval from the Board for our business plan for 2026, which align with all of our strategies, as mentioned by our COO. In terms of the gas network growth and projects, we're pleased to inform that we have got the final investment decision granted for 2 major connection of gas supply in Misfah and Duqm power plants. And that's -- as we speak, that we have been proceeding with the basic engineering phase to refine the project details. We also in the 42-inch, we have -- we are pleased also there's two things. The pipeline material, we have received the second shipment. So we already have the material ready for the construction and the third shipment is coming. It's in its way actually. So we are targeting by the end of the year to receive 93% of the materials from the mills in India. The EPC work has already commenced, and we are pleased to inform that the trenching has started. We gave the commencement certificate for our contractor to proceed with the trenching, what we call it, the automated wording, prequalification also completed and was passing successfully. So that's in progress. Actually, in terms of EPC, we are ahead of the progress as well. That's one of our major projects, as mentioned by our CEO, the 42-inch from Fahud to Sohar. In terms of RAB assets grown, it has grown by 1.6% and my colleagues, Saif, will explain further into this RAB growth and also into the green hydrogen and CO2 capturing as well. From sustainability and energy transitions, we are working closely with our main contractor -- maintenance contractor to have Omanization level up to 85%. And as we speak, we have already onboarded 6 out of 22. And hopefully, by the end of the year, we'll achieve the target in Omanization plan. Also, we are pleased to inform that we have successfully published the OQGN 2024 Sustainability Award, which was well received by various stakeholders. We have received feedback from various stakeholders and of this, the high quality of sustainability report. Next slide.

For the sake of records in terms of the volume transported to end -- up to end of Q3, it is 31.78 BMC as it is stated.

Yes, approximately 32 billion yes -- 31.6 BMC. In terms of HSC, as mentioned earlier, we have achieved approximately 19.5 million LTI free. And also we are below the target for the Multivehicle Incident Frequency. In terms of process safety [Foreign Language], we have been having a good year so far, [Foreign Language] we will keep it in the same manner. We are focusing on monitoring and refining our leading indicator to avoid all these lagging indicators. So that's our focus for the rest of the years to come. [Foreign Language]. Thank you. I shall hand over to my colleague, Saif now to handle the business and the growth.

So with regards to growth in our core business, which is natural gas. And as per the commencement of Price Control 3, we continue to expand our infrastructure to meet the growing demands in the country. Price Control 3, we started in 2024 and extends all the way to the end of 2027, which included a bundle or a package of projects, which are currently under execution. And we expect that our pipeline -- total length towards the end of the year to exceed 4,300 kilometers. We've successfully commissioned earlier this year, the 48-inch (sic) [ 42-inch ] loopline for Sohar, enhancing the capacity and also to enhance better the gas quality management towards the eastern part of the country. And the current focus areas or clusters of growth, as mentioned by Mansoor, are in the northern part of the country between Fahud and Sohar and also network growth projects in the area of Duqm. And the targeted pipeline length by the end of price control period is targeted to exceed 4,600 kilometers by the end of 2027. And with that and without further ado, I give the spotlight to my colleague, Sultan to go over the financials.

Thank you, Saif. I'd like to start with key financial highlights for the first 9 months of 2025. Our recurring profit for the period YTD September increased 19.2% compared to the same period of 2024 and our net profit increased by 2.6%. We managed to recover more than 95% of our OpEx from the shipper. And our asset base has grown with a compounded asset growth rate of 3.4% since 2022. Our ratios continue to remain healthy and below our peers in the market, which showcase OQGN capacity for leveraging the growth. Our cash flows remain to be high and stable, supported by the attractive RAB terms. And also OQGN maintained attractive and competitive dividend yield throughout the period. In this slide, we'd like to highlight the income and profit for the period YTD September 2025 versus the same period last year. You can see in the upper graph that OQGN achieved 28% revenue increase in the first 9 months, which is primarily driven by increase in construction activity. If we look at the lower graph, where shows our net profit. Our net profit achieved 19.2% increase, excluding the one-off event, and this was mainly driven by higher asset base and lower financing costs. In the left side of this slide, we can see the breakup of our revenue under different category colored with different colors. And on the right side, we can see that our asset base growth trend. And if we look specifically December 2024 compared to YTD September, we can see a growth of 3.5%, which is in line with our expectation. This slide, we'd like to highlight overall overview of the costs. In line with the previous slide, we mentioned that our construction revenue increased. The same also is driven by also the increase in -- lead also to increase in our construction costs, which we can see it under the graph. And once it's -- we look at the graph below, which shows the OpEx and admin expenses. If we compare our YTD September spending to the same period last year, the increase is a very minor increase, which is mainly inflationary increase. And just it's worth highlighting that out of the OMR 28 million, we already managed to recover more than 95% from the shipper. This slide shows OQGN operating cash flow that they are sufficient to meet the financing cash flow requirement. And also, we can see that part of our capital expenditure also was funded through the internally generated fund. This slide also, we would like to highlight that OQGN capital structure remain robust. And if we look at our financial ratios compared to industry average, we are below the industry average. And also, if we look at the restriction, which we have today under our existing facilities, once has come to net debt to RAB is 0.7x whereas we are at 0.3%, which showcase that OQGN have a good headroom to support the growth plans, which it have and the dividend distribution.

Thank you, Mansoor, Sultan, Khalifa, and Saif. Now we move to the Q&A session. [Operator Instructions] Yes, we have a question from Sashank.

This is Shashank from Bank of America. I have 2 questions basically. So obviously, you -- there's the Fahud Sohar pipeline, which is ongoing. And then you spoke about another project under FID. So our understanding is for the price Control 3 from '24 to '27, you have guided for 3% RAB growth. So does that guidance still remain? Or is there any expectation to update that? That's the first one. The second one is, in the past, you did mention a new dividend policy for 2026. So I just wanted to check if there's any update there.

Saif, you can take this one.

Sure. So with regards to the first question, the guidance provided, which is 3% asset base growth annually still remains intact. If there would be any upcoming growth projects that weren't part of PC 3, they would be -- and if they had major impact, they would be announced in due time to the market. But as we speak, everything was -- that we're currently executing is part of Price Control, either the original one or the more defined one, which was announced to the market.

Regarding the dividend policy, as we highlighted earlier, OQGN is aiming to develop a dividend policy, which supports its long-term strategic objective and also value creation for the shareholders. We had certain interaction with our Board, and we are progressing well into that. And once we have the Board approval on the policy, we'll be publishing it to the market.

[Operator Instructions] Yes, Shaoor.

I hope I'm audible. Thank you, for the presentation. I just had a question. Under the current PC 3, you guys mentioned that you have a WACC of 7.79%. Now on your balance sheet, there is a sizable debt, which is floating rate. My question is, is this floating rate debt hedged against interest rate movements? And if it is not, should we expect any cut in the interest rates to benefit the company financially?

Our existing facilities are divided into 50-50 almost Oman and USD. Once it's come to the Oman facility, as highlighted in the financial, they are at a fixed rate till June 2028 at 5.1%. And once it comes to the USD facilities, it's a margin plus compounded SOFR, which is a floating rate, and it's not hedged. And to your question, any cuts, yes, we are benefiting and it would contribute to overall profitability of the company.

We have another question from Aakarsh.

Congratulations on a great set of results. This is Aakarsh Tomar from Sico Investment Bank, Bahrain. So my question is kind of a follow-up from Sashank's question. And I just wanted to put numbers to it. So based on the current price control period, you had announced OMR 191 million of CapEx for the entire period. And later, the Sohar loopline came, which was OMR 105 million. So I just wanted to understand if I'm reading this right. So you have close to OMR 296 million, which were to be spent between '24 to '27. And out of that, last year, including last year, OMR 34 million and this 9 months, OMR 36 million, there is close to OMR 220 million remaining, which are to be spent over the next 2 years and fourth quarter of this year. So is that reading correct? So that means that your CapEx would significantly jump -- the CapEx addition would significantly jump from OMR 35 million, OMR 40 million to close to OMR 90 million probably over the next 2 years. Is that a fair reading? Or is there something that I'm missing?

So that is a fair reading. So the OMR 199 million was approved originally in the Price Control. And most of these projects have gotten their further approval to go ahead. And the ones of OMR 105 million was specifically for the 42-inch Fahud Sohar loopline. And the major expenditure on this, like procuring the pipe segments will -- started already to happen and will continue to happen towards next year and the year after.

Okay. So we'll be seeing a significant jump in CapEx over the next 2 years, okay.

Any questions. [Operator Instructions] Yes, we have a question from Bishen.

Hello, am I audible?

Yes, we can hear you.

Just wanted to check, follow-up on the interest rate sort of decline. What sort of savings you witnessed quarter-on-quarter in your interest expense because of the rate cut?

It's 2 components. It's one, the interest rate cut. And if you look at our financials, we managed also to reprice our existing facility with a reduction of almost 60 bps in the facilities. So the combination of two up to YTD September, we're talking about almost OMR 2.8 million to OMR 2.9 million savings.

Fantastic. And this is obviously for the quarter. So let's say, for FY '26, if everything remains same, what sort of annualized savings you're seeing because this is effectively straight up -- it's a straight pass-through to cash flow. So what annualized savings are you sort of computing for FY '26?

Just to correct, that is not for only the quarter. The OMR 2.8 million is for the YTD September for the first 9 months...

But for full year, what do you see?

For which period, sorry?

For next year...

We should expect almost a similar saving, and it's all subject to materialization of the SOFR cuts, which we are expecting in the market.

Q2 or in Q3, let's say, Q2, Q3 versus Q1, right? So you'll see a more pronounced effect in FY '26.

Yes. And you need to keep in consideration also, we are increasing our borrowing on the other side because of funding our capital expenditure plan also. So all in, that's how I'm looking into it.