ADNOC Gas PLC (ADNOCGAS) Q3 FY2025 Earnings Call Transcript & Summary

Welcome to the ADNOC Gas Q3 2025 Earnings Call. [Operator Instructions] I'll now hand you over to Richard Griffith, Vice President of Investor Relations.

Good afternoon, and welcome to the ADNOC Gas Q3 2025 Earnings Call. My name is Richard Griffith, and I'm acting Vice President of Investor Relations at ADNOC Gas. Next slide, please. As a publicly listed company, I need to remind you of our disclaimer on this slide, which we encourage you to read. It contains important information, and we advise caution on the interpretation and limits of historical data and forward-looking statements. For reference, the presentation slides are available on our Investor Relations website. Next slide, please. Presenting today will be our CEO, Fatema Al Nuaimi and CFO, Peter Van Driel. I will now pass over to Fatema to go through the key highlights of the third quarter.

Thank you, Richard, and thank you, everyone, for joining us today. Our results for the third quarter, which we'll come to shortly, have been very promising, a testament to the strength and resilience of our business model. ADNOC Gas is exceptionally well positioned to capture future growth opportunities in both domestic and international gas markets that should deliver long-term value for its shareholders. As you can see on this slide, gas demand remains strong in the UAE and Asia. UAE demand is expected to grow 4% to 5% a year, while Asia's energy needs are expected to rise 1.5x by 2030. In addition, new demand from AI data centers could add a further 13% to global LNG demand. We are well placed to meet this demand through our plan to expand our capacity by about 30% by 2029 with 20 billion of CapEx already committed to our key projects, MERAM, Rich Gas Development, RGD and Ruwais LNG, all under execution. These projects drive our 40% EBITDA growth by 2029. Confidence in our resilience, growth and ability to deliver resulted in an announcement at the recent ADNOC Majlis that we are extending our dividend policy of 5% per annum by 3 years to 2030. In addition, from Q3 2025 onwards, we intend to pay quarterly dividends with our first payment expected in early December. This will result in USD 24.4 billion in dividends to our shareholders through 2030. Next slide. Now I'm pleased to share our continued progress and record performance for the third quarter this year. We recorded adjusted net income of USD 1.34 billion for the quarter, which is 8% up year-on-year, making it the highest ever third quarter net income in our history. Again, our results demonstrate the resilience of our business model even in a lower oil price environment. Zooming into the domestic market this quarter. Our third quarter results were underpinned by the domestic gas business that delivered adjusted EBITDA of $914 million, representing a significant 26%-on-year increase. Domestic sales gas volume was up 4% year-on-year, while there was a structural improvement in underlying margins from contract renegotiation and robust gas-to-electron demand from neighboring countries, making GCC markets that resulted in additional sales volumes. Looking at our growth projects, during the quarter, CapEx reached $827 million, a significant year-on-year increase of 64% as we invest through the cycle to achieve our 40% EBITDA growth target by 2029. For the first 9 months of 2025, our free cash flow generation not only covered CapEx but also dividends. This reflects a disciplined capital structure that balances investments into growth projects with continued shareholders returns through dividends. Finally, on the dividends, our Board of Directors has approved our interim dividend of $896 million for Q3, our first ever quarterly dividend in line with our updated dividend policy to distribute on a quarterly basis. As I mentioned earlier, we have also extended our 5% per annum dividend growth until 2030. We have now successfully commissioned IGD-E2 on time and budget. This strategic project boosts our offshore gas processing capacity and connects that to our onshore facilities. This significant milestone in our -- this is a significant milestone in our growth program. Finally, a few thoughts on AI as we continue to deploy this across our operations to unlock value creation. We've just signed a multiyear partnership with AIQ and Gecko Robotics, which is expected to deliver over USD 300 million in maintenance and inspection cost savings over the next 5 years. By integrating AI and robotics into asset inspection and maintenance, the program will enable predictive maintenance, reduce shutdown-related costs and extend assets life span, directly improving our operational efficiency and lowering our expenses. In addition, we are also moving forward with our autonomous operations, AI-driven production optimization and intelligent asset performance related initiatives with the ultimate aim to unlock more value and create more value to our investors. I will now hand over to our CFO, Peter, to walk us through our financial performance in more details.

Good afternoon, and thank you, Fatema. Welcome to the earnings call on my behalf. Let me start with an overview and we have seen that we have a record high third quarter. The first, however, just looking at the year-to-date numbers, and we're comparing '23, '24 and '25 years and what you see is that the net income in the period from '23 to '25 has increased by 30%, right? That is from 3.08 to 3.99 first 9 months of this year. And note that this occurred in a lower oil price environment, 13%. If you do the math, you go from $82 per barrel in '23 to $71. And that is a key proof point in the resilience of the company. What is growing is the domestic market. You can see it in the slides what the increase in those comments, which is the yellow light color part at the bottom. And that is a contribution of $600 million if we compare '25 with '23. The pricing impact, the 13% lower oil price impact the export, and that's in darker green. And those are products like naphtha, condensate and LNG and LPG as export products. Now LPG, those prices were quite resilient more than the other export products actually in the first half of 2025. We saw some weakening in the third quarter of '25 and it's now more in line with the historic correlation between Brent and LPG. But we definitely benefited from LPG pricing strength in the first half of this year. And if we go to the next slide, a little bit more of an insight into how the pricing has behaved. If you look at the bottom left, you see that the LPG pricing was 10% lower year-on-year. Brent was falling 14% year-on-year. You also see that the naphtha pricing is now, again, also more in line with Brent. And the last marker is JKM. This is a price marker for LNG, and you see that the LNG pricing is very different in a positive way from Brent and again, shows how the energy market is developing at the moment on the back of stronger demand in this year. Let's go to the next slide. Now if I zoom in on the quarterly results Q-on-Q. It again shows the strength of the domestic gas market, right? We've increased, as you can see, our net income by 8% and the domestic gas contribution by far outweighs the reduction in the export due to lower pricing environment. And this, again, I may sound like a broken record supports the resilience of our business in a pricing environment. And don't forget that 2/3 of our volumes actually find a home in the UAE, the domestic market. Next slide. If you look at this domestic market, EBITDA has increased by $690 million, and that's between '23 and '25 both year-to-date 9 months. If the top line on the left-hand side is the sales quantity of 7% is the growth in volume of our sales. If you compare that with the EBITDA that has grown by 36%, it is evident that our margins have truly improved, which is on the back of a lot of commercial initiatives that the company has undertaken in the last 2 years. And I'm quite confident that we can further improve the profitability in the domestic market, basically serving new customers or existing customers that want to further expand their operations and thirdly, customers like in the power sector that require more flexibility and you see that on the right-hand side, the power sector is quite an important customer segment for us. Next to that, you've got the heavy industries and then you've got group companies that we're providing gas products. On the heavy industries, that is an area, for example, you got the aluminum, the cement and the steel production. Our gas is serving 100% of their needs. And the gas-fire power segment is very much linked to the growth in the population in the UAE. And if you follow that as a metric, you will understand why the domestic gas market is performing as it does. Next slide. So on this slide, we are showing the same on a quarterly basis. I think the long and short of it is, it doesn't matter which time period you choose. In any case, the volume impact is positive, more sales and the EBITDA development is even stronger than the increase in sales volumes, which signals an underlying improvement in your margins. We ended the quarter for the ADNOC total results with an EBITDA margin of 36.6%. For the ones who were with us on day 1, you may remember that at the time we guided for an EBITDA margin of 33% to 35% that was only 2 years ago is again a proof point of how much we've been able and will continue to work the domestic gas market. Next slide. Now, we focus on the export markets. This is where you see both the impact of volumes and mind you that's Q1, we guided [indiscernible], but also to a certain extent, the last quarter of '24 was impacted by scheduled maintenance. That is something that is typical for our industry. And then at the bottom, you see how the EBITDA gets impacted by the pricing. And on the right-hand side, you see the numbers that illustrate volumes 2% down and the EBITDA margin is down 9%. Bear in mind that the drop in Brent was more than the difference between the 9% and the 2%. Next slide. Cash flow, the financial framework of the company is extremely strong. Today, we have hardly any leverage in the balance sheet. The only thing we use in facilities for working capital purposes at ADNOC Gas is an extremely strong balance sheet. And you can see from the graph, if you look at the numbers working capital 9 months this year, that the CapEx, first of all, is stepping up and that is I think consistent with what we've been saying all along. We have enough free cash flow to honor our dividend commitments quarterly as the CEO mentioned and will be paid by the way, no later than December 12, so that investors do not have to wait that long and over time, if we were to extrapolate this into the future, you will see that part of the CapEx that is growing about $3 billion a year will be financed and we have a loan facility already in place of $4 billion that we can draw down any time we like if the need arises. But '25 concluded as a company that generates strong cash flows that did not even have to use its balance sheet. We will in the future, but in '25 it's not. Next slide. Outlook, I mentioned the EBITDA margin at 36.6%. The second point I want to make is that ADNOC Gas is subjected to some seasonality. The third quarter traditionally is always the strongest quarter for the ones living in this part of the world that recognize that it can be somewhat warm during summer and that has an impact on the consumption of gas in the country. So Q4 is traditionally where we also undertake some of our maintenance activities. And the other point I wanted to make is if you look at the net profit unit margins for the fourth quarter, we have not included the gas-to-electron proceeds because that's come through auctions, and we do not know upfront whether we will be successful in those auctions. Other than that, I think this should provide you with all the clarity you need to come to an assessment of how the year '25 will play out. I think that's it. I'll hand it back to Richard for our Q&A session.

Thank you, Peter. And I'll hand over to the host to start the Q&A.

[Operator Instructions] Our first question is an audio question.

So the question is coming from Ahmed Kamal, Azimut and he asks if we can elaborate a little bit more on the decline in the effective tax rate in the first 9 months of this year? And the second question is that related to more profits coming from the domestic gas business. And last but not least, he wants to know if there's any update on a tax holiday. I think you see indeed a decline in the effective tax rate. And that is because on the export of our business, we pay 55% tax. On the domestic gas business, the tax rate is 15% on the first $1 billion taxable income and 35% above the first $1 billion taxable income. However, there is a tax holiday that means that the domestic gas market at this moment is not subject to tax. That tax holiday will end late '27. And the other question that was asked is, is this tax holiday going to be extended? I can only say I don't know. I think that we should all be reminded that the fact why the tax holiday was granted in the first place at the time of IPO. The rationale at the time was the company invest in the UAE, builds infrastructure, develops the economy at the time, by the way, the investment outlook showed $13 billion and that was the rationale for Department of Finance government granting a tax holiday. Now we all understand the magnitude of the tax holiday. It is a big amount of money. And we will, of course, do our best to see if something else could be accommodated. But at this moment, I got zero knowledge of it.

Our next question is from Soha Saniour from Arqaam Capital. Can you explain why LNG volumes dropped that much in Q3 '25 if maintenance is yet to be executed in Q4 '25?

That's a very simple question to answer because the maintenance I referred to in Q3 was for LNG production. The maintenance that follows in Q4 was more for other facilities. So the LNG has 2 trains, if I remember correctly, down for scheduled maintenance and that impacted our energy sales.

We will now go to an audio question again. Obviously, we can't hear from them. We next have an anonymous question that says, what are some of the operational advantages that Ruwais LNG will bring compared to the Das LNG facilities?

Okay. I'll take this. So Ruwais LNG, of course, we're talking 50 years difference of the time of commissioning between the 2 projects. So there is a much-advanced technology utilized in -- going to the Ruwais LNG. The main advantage would be that this is going to be electric driven facilities and tapping into the clean energy, which reflects again on the level of emissions of the facilities. Of course, this also reflects on reliability and more efficiency operationally wise and even the mining and the operating of these assets. So this is going to be state-of-the-art facilities.

We'll go back to the phones. Our next question is an audio question from Abhishek Kumar.

I have a question around CapEx. So obviously, I mean, you have $20 billion of CapEx spread until 2029, which covers some of the major projects. And you also have one project, Bab Gas Cap, which is going to be FID next year. There was also announcement in the Majlis that unconventional project is going moving forward from ADNOC and a big portion of that would be gas. So should we assume additional CapEx coming to ADNOC Gas to link the facilities that would get developed as part of this unconventional gas development. And again, I mean, how that would impact your overall volumes going forward?

Okay. Thank you for the question. Today, our committed CapEx is $20 billion, and that is a combination of 4 large projects, IGD-E2, which is almost now the CapEx reduced to virtually no money left because it's done, it's up and running. Then we have MERAM, methane extraction and you see the increase in CapEx this year is very much due to MERAM. Ruwais LNG is going to be coming to ADNOC Gas at most in the second half of '28, that will cause a spike in CapEx in that year. And last but not least, we have the first phase of the Rich Gas Development, which is debottlenecking. The 4 projects and of course, our normal and maintain CapEx gives you $20 billion. We have 2 investment decisions to make in the first half of '26. Both relate to the Rich gas development. It is Phases 2 and 3. Those projects are respectively gas processing train and fractionation train. We will make the FID once we have full clarity and visibility on how much extra gas will come to us that justifies an investment in extra new capacity, and we want to have clarity on the composition of the gas. If you have enough Rich gas in your mix, you can fractionate that, which is part of the third phase and export the gas. Those are the 2 key questions that we need to answer as part of the FID decision moment. If we would take FID, then I expect that the CapEx for each of those 2 projects will be in the order of magnitude of $3.5 billion-$4 billion, but the final number, we will only know once the tender process is completed. So don't take this as gospel, I'm trying to help by giving you a range. And if you were to take FID on the 2, your committed CapEx would increase if you have taken FID and in theory, it would add up to about $27 billion and $28 billion, respectively. So that is the outlook, but the FID decision must be still made in the first half of '26. We then also have another great opportunity in our funnel, which is again subject to FID, which is the Bab Gas Cap project. That will be slightly later in '26 when we take an investment decision on that. Our objective is to accommodate the growth from upstream that can be conventional and conventional onshore, offshore. We are ready to process those additional volumes, and we have the opportunity in the first phase to use our existing infrastructure. So you improve on your utilization. It is a capital light way of growing. The next step is you get the benefit from the debottlenecking from the Rich Gas Development, which is currently under execution. And your third step is that you start to invest potentially in new infrastructure in 2 new trains. I hope it answers your question.

And the next question is also an audio question. Caller, if you heard the beep, could you please go ahead and ask your question? Okay. We'll move on to the next question, which is a text question from Faisal Al Azmeh at Goldman Sachs. Can you talk a bit about the Phase 2/3 expansion and the expected returns from these projects? And how does Phase 1 play into achieving these returns? Would all 3 projects combined allow the company to achieve high digit returns on the combined CapEx?

I think I gave some color, right, on the 3 phases on the Rich Gas Development. Phase 1, debottleneck, Phase 2, potentially invest in more processing capacity and Phase 3 invest in the fractionation train. Now the question is what kind of returns do you foresee? And I think I always have tried to help the market with assuring the market that we never take projects that have an unlevered return that is not in the mid-teen domain. You could distinguish by the way, between Phase 1, 2 and 3 in terms of returns. And I personally think that the fractionation train will be the highest return because that train is very much used for the exports. And as you know, the export molecules, [indiscernible] that attracts a higher premium and more valuable than the gas that we sell in the domestic market. So it goes then, of course, automatically with a higher return. All of these projects, as I said, unlevered to mid-teen returns. The company is also actively has shown that to you last year that we are not afraid if projects do not make that hurdle rate, do not execute, do not take decisions on. By the same token, we also have last year transferred certain infrastructure assets whereby -- and we all know that infrastructure normally does not have a mid-teen return. Instead of being an owner, we now pay for usage, right? And that helps the overall returns in the company, and it is an area of focus for us, taking an FID decision for such huge amount of investments is not something we do lightly. And that is why we also said the FID decisions are somewhere in the first half of '26. I don't think we should be overly accurate about it. It's coming. We will inform you when the moment is there.

The next question comes from Oliver Connor at Citi. I understand that technical bids are progressing for the Umm Shaif gas cap. Could you talk about the time line and potential size of this project?

I wish I could. I wish I could. But I don't think I should talk on behalf of ADNOC upstream and their projects. So that I think I'm going to pass that question. What we do is we benefit from the growth in feedstock that comes from ADNOC. They are, as we all know, working hard to reach production capacity of 5 million barrels per day, and that growth constitutes different developments in the portfolio.

The next question comes from Ahmed Kamal at Azimut. Can you elaborate more on building a first infrastructure connection to a data center? You mentioned this in the results presentation.

Yes. I find the data center like anybody else, quite fascinating development for ADNOC Gas. It means that there is a new demand center on the horizon. But I want to make 2 points. The first thing is that when we talk AI data centers, and yes, we're making sure that we have the infrastructure in place, get all the gas that's required as a source of energy for data centers in place. We focus very much on the UAE. But if you look at, for example, a country like Japan where you follow a demand outlook for gas and you can look at Wood Mackenzie or any sources like that, you see that the demand outlook is positively impacted by more gas needed to fuel data centers. So when we talk about data centers, I believe it is a huge opportunity for the company, not only in the UAE, but also, we will reach it by means of our exports. The key question is, of course, is this going to move the needle in a material way, the simple answer is I don't know. I don't know how many data centers will be in the UAE. I don't know what the energy mix is going to be because it's highly unlikely in my view that the data center, the energy only comes from gas. This country is blessed with a lot of good opportunities to have more solar in the energy mix, and I'm sure that's going to happen. So ultimately, the energy for data centers will, in my view, not just be only gas. It will be hybrid between solar in particular and gas. And probably the same is true for other countries as well, right? So at this moment in time, I can only see that it is a great growth area. It's a new demand center. But at the same time, it's also too early to really quantify it and be overly optimistic how much impact that would have in a given year. Let's be realistic about it and keep a balanced approach.

We've just had a question come through. It's from Jean-Pierre Dmirdjian at Kepler Cheuvreux. You highlighted additional gas sales for electricity generation in the GCC that boosted margins further in domestic gas. Can you clarify whether this pertains to gas sales to Oman and if it's connected to imports/exports through Dolphin or to gas produced in the UAE?

Jean-Pierre, thank you for the question. So we in the UAE have access to gas from ADNOC Gas who is the only entity in the country that can process raw gas. Next to that, there is processed gas coming from Qatar into the UAE and Oman. The volume of processed gas that comes from Qatar and that reaches the UAE is 1.8 Bcf. The balance, 0.2 Bcf is going to Oman. The contract with Qatar is a government-to-government contract, and that will terminate as most of you know, in 2032. The sale of gas-to-electrons is an output, and it is, I believe, a great commercial initiative whereby ADNOC Gas was able to monetize molecules that were available and not long-term committed. We team up with the power sector and the volumes are used to generate electricity that is then sold in an auction. So in the GCC, there are auctions for electricity. The grid is connected and what we have done is participate together with the power sector in these auctions and it's a win-win. ADNOC Gas monetizes gas that is not committed long term. The power plant is better utilized with better returns, and we then participate in these auctions. The good news is that the auctions originally were, I think, 3 or 4 months in duration. And you see now that the duration of these auctions is getting longer. I don't think we are there, and we can claim this as a structural source of revenue, but seeing the duration of the tender increasing from 3 months to a year is definitely helpful for the performance of the domestic gas market of ADNOC Gas.

Our next question is an audio question.

It's Alex from JPMorgan here. Just when we look at the pricing increases that you're getting in domestic business on supplying volumes over and above the contract level, can you give us some indication of what that is sort of priced at? I'm assuming the main competition for you guys is Dolphin, and I've seen numbers quoted around about $6 to $7 a MMBtu for interrupted gas prices. So is that the kind of dynamic that you're getting? You're getting that level of jump up in pricing when your volumes are delivered above the contract level? Just to confirm that.

I wish I could give you an answer that would make my life a lot easier, but I can't. For commercial reasons, we do not disclose the pricing to our customers. I think there's one exception to that because one of our key customers, Borouge has disclosed the price of ethane that we provide to them starting the year '27. But if you look at the overall pricing environment for the domestic market, which is not linked to Brent, I think it ranges, of course, between our contracts that are in place and some of them date back quite long in time. Then the third pricing component is potentially Dolphin, but don't forget that Dolphin is committed, right? The real ceiling in pricing is the energy import parity. That is the alternative that a buyer has. So that is the domain in which we can play. And also our pricing is not necessarily always fixed. We have customers that require a lot of flexibility. So for example, customers with solar in the mix again, there are certain intraday swings, right? At night, gas and during the day, you use the sun. At a moment, those intraday swings are getting bigger and bigger, depends on how much solar comes into the mix. Now that flexibility the company can provide. And then you've got the pricing structure where you basically pay for the flexibility. And I hope that gives you some feel for how this works. Then I spoke about the electrons that is purely market. And we're not the only ones who can do this. So that's purely a commercial play, that means an auction. And then the last thing we also do is make use of swaps within the country. For example, Dolphin has certain volumes available in places where we don't serve customers, we undertake swaps with them, we serve their customers, they serve ours, right? So those are the levers that we pull, which has resulted in this very strong performance in the domestic gas market. And that is how we started, of course, with the increase in EBITDA of 26% compared to the first 9 months of '23. It is a huge effort, and it's a commercial effort. And I said this before, I believe the company has more potential to further undertake these commercial activities.

Thank you. There are no further questions in the queue. So I shall hand back to Richard.

Thank you very much to all of you that attended and your questions. And this concludes the Q3 2025 results call for ADNOC Gas.

Thank you.