OQ Gas Networks SAOG ($OQGN)

[Foreign Language] Hello, and welcome everyone, Ramadan Kareem. My name is Ahmed. I'm OQGN Investor Relations Manager. First of all, we would like to thank you for joining us today to discuss the company performance and the financial results for the year 2025. Before we begin, I would like to give -- can you please, [indiscernible], can you mute yourself. Can you please all mute yourself. Okay. Before we begin, I will give a brief in Arabic. [Foreign Language] Welcome once again. I am pleased to introduce the executive management team, Engineer Mansoor Al Abdali, the company's CFO -- CEO, sorry. And Engineer Saif Al Hosni, the Chief Business and Commercial Officer; Mr. Sultan Al Balushi, acting CFO; Engineer Khalifa Al Makhmari, Chief Operating Officer. Engineer Mansoor will begin the presentation by highlighting the key statistics and achievement for the year, followed by Engineer Saif, who will discuss the growth aspiration. And finally, the CFO, Sultan will take you through the company financial performance. Before we begin, I will take you to the second slide of this presentation, which contains the disclaimer statement. In today's course of discussion, we may refer to some forward-looking statements or future events. We are not committed to keep the same views if the fundamentals of the business or macroeconomics change. Therefore, we refer you to our public filing at MSX or our company website. By that, I will now hand it to Mansoor to start the presentation.

[Foreign Language] Good afternoon to all attendees of this session where we are sharing with you the key performance of OQGN during the course of 2025. I would like to share with you the overview of the organization assets, as you can see in the -- represented in the geography of Oman. And we are very proud to say we were able to commission or initiate several projects, namely, we were able to commission a 48-inch 65-kilometer pipeline towards Sur as well as another stream towards the south of 177 kilometers. You see it colored in red. But also very interestingly, we were able to secure some projects like the acquisition of Ghazeer, which is connecting BP Phase 2 to our network. And in addition, also the commencement of construction work on a 42-inch 190-kilometer pipelines debottlenecking the stream towards Sohar. Moving forward, this is also a reminder that we are still -- we're having a concession of 50 years ending 2070, and we are at a WACC rate of 7.79% during this period, Price Control period #3. Move on, Ahmed, to the next slide. And here, more insight of our business. Very happy to say we have 100% availability during the course of 2025, 0 interruption to our connected parties, either upstream or downstream. We -- our network is now standing at almost 4,370 kilometers in terms of length and a total capacity of 76 billion cubic meter of gas. We are very proud of several achievements, as you can see it here outlined. But key facts, we remain very committed to sustainability. And you can see a reduction from -- on our GHG in terms of Scope 1 and Scope 2 by almost -- by more than 12% and as well our effective participation on key policymakers in the country, key stakeholders on the decarbonization programs, especially opportunities on CCUS, where we are collaborating with Oxy for the usage of CO2 for enhanced oil recovery. In addition to our efforts on the transportation of green hydrogen, which is been wrapped up last year through a technical commercial proposal that was submitted to the various -- to the policymakers as well as -- we've been recognized as the national champion amongst the ministry as well as the main developers active in this field. Move on, Ahmed. And I think this is a demonstration of how much manpower the company is undertaking in its operations. And we're very happy to see [Foreign Language], we have a very high safety statistics either on our occupational indicators or most safety indicators. So this is a high-level performance on the key business factors of our business. Now we'll do more deep dive into either growth or even financial performance. Saif, can you take us through the growth side, please?

Sure. So I'll give some insights on the company's growth performance of 2025. OQGN continues expanding its infrastructure to meet the national gas demand. In particular, 2025 was an excellent year for us. The overall network vicinity has reached 4,370 kilometers, mainly underpinned by the Central 48-inch Rich & Lean Segregation project, which added 65 kilometers to the asset base. And the acquisition of the BP Ghazeer pipeline, so a 65-kilometer 36-inch pipeline that was also added to our asset base. While we're speaking and as per the plan, developments in Duqm are underway. So we have a couple of projects under EPC equating to 17 kilometers. And as mentioned previously, the 42-inch mega project from Fahud Sohar is also in construction phase. So we continue to deliver and exceed what was promised in the beginning of the price control. And with that, I give a spotlight to my colleague, Sultan, to go over the financials.

Thank you, Saif. In the coming few slides, I'll be walking you through the financial performance of OQGN for the year 2025. To start with, I would like to put light on the key financial highlights, which we have achieved in 2025. Our recurring profit for the year has increased by 20.5% compared to 2024, and our overall profitability for the same period increased by 7.2%. OQGN also managed to recover 90% of its expenses. And our regulated asset base has increased with an average annual growth rate of 5.1% since 2022. Our debt ratio continued to remain below the peers and industry average, which showcase OQGN capacity to leverage for the growth. We see also the impact of the repricing exercise, which was done by the management for the USD and OMR facility, which is contributing to overall profitability in 2025. Our operating cash flow continued to be high, stable, supported by attractive RAB terms. And OQGN also maintained attractive and competitive dividend yields compared to its peers. Here on this slide, we'd like to highlight the performance of '25 compared to '24 once it comes to income and the bottom line, the profit. To start with, you can see that our total revenue -- total income increased by almost 40%, and this was primarily driven by increase in our construction activity and increase in our concession income. And if we look at the graph on the bottom, which is net profit, you can see our net profit increased also by almost 20.5%, which was mainly contributed by increase in our concession income and the saving which we had in our financing cost of OMR 3.5 million, which was driven by the repricing exercise and also partially by the Fed cut -- [indiscernible] rate cut by Fed during 2025. Here, we'd like to also highlight that in the left-hand side of the graph, you can see that our income, excluding the construction margin remained stable and increasing year-on-year. And also our net margin, excluding the one-off event is increasing to 41.6% compared to last year, 36.7%. And on the right-hand side, you can see that our asset base is growing. And if we look at specifically the year '24 and to the year '25, our asset base increased by 9.6%. Here, we'd like to have an -- shed an overview on our cost. As we mentioned in the previous slide that our construction margin increased -- construction revenue increased. In line with that, our construction cost also increased in 2025, and this was mainly also contributed by the commencement of Fahud Sohar Loop Line Project. The graph below, you can see our OpEx and administrative expenses. If we compare '25 to '24, it's a slight increase, which is mainly inflationary. And it's worth mentioning also out of the OMR 40.7 million, 90% is recovered under the RAB rules. Here, we'd like to highlight that OQGN operating cash flows are sufficient to meet its financing capital requirement. And also, as you can see throughout the years, we were partially also funding our capital expenditure through the internally generated cash. Our capital structure remains robust. And if we look at our net debt, the increase from '24 to '25 is only around OMR 27 million. And you can see all our ratios remain healthy and below the industry average and also below the restriction which we have under our existing facilities. Thank you.

Thank you, Sultan, Saif and Mansoor. So now we can open the Q&A session. [Operator Instructions] Yes, we have a question from Shaoor, please.

I just had a couple of questions, starting with the Duqm development that you mentioned in the presentation that is underway. What is the expected addition to your regulated asset base once that is completed?

So Duqm from the map, we're talking potentially about 57 kilometers. But out of these 57 kilometers, 17 are currently under construction all the way to the port. And with an expected delivery date by the end of next year.

Okay. And in OMR terms in -- how much your regulated asset base would increase by, in millions of riyals, if you could tell us that?

I don't have that figure, but I'll make sure that I'll get back to you through the investor relations.

If I remember correctly, the 42-inch Sohar pipeline is expected to add close to OMR 100 million to your regulated asset base. Is that correct?

Yes.

Yes, that's correct.

Perfect. And my last question is regarding your upcoming dividend policy because as you know that the committed dividends from the IPO period is now over. Could you maybe briefly tell us about your new dividend policy? How would you guys be monitoring that and paying that off?

Just to start with that, our existing policy is still valid. And also the Board proposed for the next AGM a distribution of OMR 0.6 per share for the second half of 2025, which is in line with the distribution of first half of the year. Regarding the new policy, we are progressing very well, and you should expect that we will be publishing the new policy within this month.

So now we have a question from Bishen.

And my query was also with regards to dividend, which Shaoor asked and you answered. And just to follow up on that, you mentioned you release it at the end of the year. Now the committed period has already ended with this OMR 5.6 payout and hence, going forward, the dividend you would see in October would be as per the new policy, just to confirm that?

Yes. So the existing dividend policy was still 2025. For 2026, we will be publishing the new policy...

Okay. And the policy would outline in terms of what the dividend will be linked to? Would it be linked to operating cash flow or free cash flow or net profit, I would assume. Does that address it? Or could you give us some heads up on that?

We will give the details on the publication itself.

Okay. Understood. And just in terms of -- you've discussed in the past and it's still sort of down the line, but on green hydrogen or any other sort of forward plans, any progress there still in sort of very preliminary stages? Is it worth having a discussion at this point?

So I think initial effort was to secure mandates, and we've received these mandates as the national champion for both green hydrogen and CO2 transportation. When it comes to green hydrogen, of course, there's kind of reduction in the pace of how things are developed. It's due to the market. However, our position as the national champion for this sector is solidified. So whenever these opportunities come, we would be responsible for the development of this new sector. When it comes to CO2, however, we are making good progress. And we are in advanced stages of the feasibility study of a certain northern ecosystem in Oman. And hopefully, by the end of this year, we would have clarity on whether an FID can be made or what are the next milestones upcoming and how they could contribute to the profitability in general to OQGN.

And just to understand, from a business perspective, even if you were to take on down the line green hydrogen, irrespective of the capital structure funding it, you would still follow a similar model of monetizing it on day 1 through capital work in progress and then on your overall bank.

So I think it's too soon. But I think one principle is that if it's not Fahud, it should be around like type of Sohar. So we're trying to come up with a commercial structure that minimizes risk, minimizes any impact with the -- or any linkage to the commodity price or the volume. So some sort of low-risk take-or-pay capacity-based model that gets a certain fixed return, agreed return from day 1. So in general, that's the theme.

Yes.

Yes.

Okay. I'm just trying to arrive at the current structure is you put infrastructure in place on day 1, you start monetizing it. So your CapEx is sort of compensated with monetization on day 1. Any future sort of -- even if there are greenfields or any new sort of infrastructure build, would it have a similar structure? That's my question, more so than about green hydrogen per se.

Yes. So general, that's a valid assumption, yes.

That's what I wanted to understand because that then feeds into sort of cash flow that the organization generates and the ability to pay dividend because it's -- the business model is quite robust, quite safe, but contingent on sort of regular streams of cash flow with, say, an organic growth rate of 3% to 4%. So it was just testing on that hypothesis. That's it from my side. Look forward to interacting on the dividend policy is out.

Thank you, Bishen. Sure. We will actually announce it as the CFO said before end of this month. We have a question from Boris from Oman Investment Bank.

Congratulations which was a good year and I wish you the same for this year. Two questions from my side. One follow-up on Sur network. Yes, it's clear you mentioned that the most promising or at least you mentioned in the northern system is, could you please maybe clarify next milestones or any bottlenecks you see for the Central and Southern part? That's the first question.

Maybe second question, then I'll come back to both of them.

Okay. And second question is a broader one, probably maybe your views on the overall Omani gas market because we all noticed that you are quite successful in expanding network capacity over the last few years, we noticed that both network capacity growth and pipeline lines growth, I mean, when it comes to the ownership by OQGN. But at the same time, I personally don't see any respective increase in your expectations of volume transported. So the question was maybe just broad your views on whether you're going to -- I mean you -- we're expecting to see some increase in volumes in production volumes of gas or in transportation volumes so that actually it matches your increased capacity or basically, it's not the case at the moment, still -- you see the market as offering quite huge excessive capacity.

Okay. So starting with the first question, I think as you rightly said, most of the focus is in the Northern ecosystem. I think recently, we've issued a call for interest in the market to see the interest of either the capture of CO2 or the demand of CO2 to be used for enhanced recovery or utilization of the feedstock or even storage. And from that interest, a couple of parties have shown interest in the Southern and Central ecosystems, but they are yet to be studied. So the focus is still on the north because we have a very clear demand for [ Nimr ] and a very clear source of CO2, which is Sohar. Towards Central and South, we are getting interest and data, but it's still -- I think it's as we go. But at the same time, the government and Oman [indiscernible] Center is also applying pressure to emitters to start thinking about how they can reduce their carbon footprint and their -- thinking about regulating this type of sector in terms of tax and credit. When it comes to capacity really, as you can see from the slide of the growth, we do project and our projections are always based on the natural gas business plan, which is developed by the shipper and by the policymaker and they convey to us. So you can see that we do foresee an increase in the volume transported, of course, which it follows the increase in demand and the slight increase in gas supply, of course, from gas suppliers. However, really it's the shipper or IGC's role to plan the gas mix or the gas balance between supply and demand, but we do see an overall increase. And at the end of the day, our job is to ensure that our infrastructure can cater for that increase in volume.

And follow-up on the last question, actually. Is there any rule of thumb or any formula of normal excessive capacity the country should -- like should have given the transportation volume, or it's not like it doesn't work this way. I'm just trying to understand whether kind of at the moment, your capacity of -- I mean, your plan for capacity of above 80 bcm for 2027 and your planned transportation volume of 47, is it kind of a situation of excess capacity or it's kind of a normal extra gap?

It's a combination of both. However, we are working currently with the security of supply type of theme with the regulator. So your spot on and we're trying to develop or to clearly document this with the regulator. But it's a mixture of both. It's a mixture of making strategic or capacity sometimes for future growth or sometimes for strategic purposes, but also at the same time, ensuring that from a business perspective that you don't oversize and just overcharge. So I think it's a mixture of both, and we are working with the regulator to come up with some sort of benchmark on what is necessary or what is sufficient.

So we have a follow-up question from Shaoor.

So I just needed a simple understanding of the business model. Obviously, we have a basic understanding. But if I'm reading your numbers correctly, we have seen close to OMR 100 million of increase in your construction assets. However, the construction revenue has also gone up by close to OMR 56 million this year. So I mean, the difference was not adding up because we can see that there's an 8% to 9% increase in the asset base versus a 30% increase in revenue and maybe close to a 20% increase in the net profit. You mentioned, if I'm understanding it correctly, that the increase in revenue in construction assets is related to the 42-inch Sohar pipeline. So is that -- are those numbers also being capitalized in the balance sheet? Or if you could maybe just give us some clue of what's happening here?

I think, Shaoor, here, what we are talking about is the construction cost and the construction -- so basically, we are following IFRS 12 accounting. So whatever revenue we get on this construction, there's also cost which we need to capture. That's why you see the revenue is going to the higher side. But also you can see the cost is also increasing on the other side. That's why overall, the impact is netted off, if I understood your question correctly. And once it comes to the growth, it's the growth assets which we have, which is all capitalized plus also the acquisition, which our CEO highlighted at the beginning, the acquisition of Ghazeer pipeline, which was almost OMR 40 million.

[Operator Instructions] Okay. By this, we would like to thank you for joining us today on this conference call. [indiscernible] Thank you so much. Have a good day.

Thank you.