OQ Gas Networks SAOG ($OQGN)

Hello, and welcome. My name is Ahmed. I am OQGN Investor Relations Manager. First of all, we would like to thank you for joining us today to discuss our company performance and the financial results for the first quarter of 2026 ended 31st of March. Before we begin, I would like to give a brief in Arabic. [Foreign Language] Welcome once again. I'm pleased to welcome to introduce the executive management team, Mr. Engineer Mansoor Al Abdali, the company's CEO; Mr. Sultan Al Balushi, acting CFO; Ali Mohammadi, Head of Business Development; and Khalifa Al Makhmari, Chief Operating Officer. Engineer Mansoor will begin the presentation by giving you an overview about the company performance for the last quarter, followed by Ali Mohammadi, who will deep dive on the aspiration and future growth. Sultan will shed light on the company performance for Q1 2026. After that, we will open the Q&A session. But before we begin, I would like to refer you to Slide #2 from this presentation, which contains a disclaimer statement. In this presentation, we may refer to some forward-looking statements based on the information available to us as of now. We are not committed to keep the same views if any situation change in future. Therefore, we would like to refer you always to our public filing in MSX or in our website. So now I will hand it to Engineer Mansoor to start the presentation.

We would like to welcome all in this call, where we'll be discussing OQGN Q1 2026 performance. I will start by giving a reminder on the company business portfolio and then my colleagues will go and do a deep dive on either operational or financial performance results. Just a reminder, OQGN is the sole owner and operator of gas transportation in the Sultanate of Oman. We operate and own large network of more than 4,300 kilometers, connecting all oil and gas companies on the upstream side to more than 130 connected parties. Those are various industries, power plants, petrochemicals, the LNGs and other industries who are dependent on gas as a commodity for their industry. We have a large capacity in our network. It's almost 76 billion cubic meter. We're very proud to -- are able to deliver to our promises. And I think in my previous presentation mentioned that last year, we delivered 42 billion cubic meter of gas for the total of 2025. And for this -- for Q1, we are within that quantum on a percentage-wise. So if I move on to the next slide, and this is here we are in the geography of the country. We have a network extending all the way from top north to bottom south. And as I said, connecting all oil and gas fields to our network. And the other side is all the industries, including 5 distribution networks that we are owning and operating in areas like Madayn where small and medium-sized industries are located. Again, we have a 50-year concession with the government up to the year 2070. We are a regulated entity. And for that, it means our financials are more predictable as Sultan very shortly will explain. So now I'll move just on one -- ask Khalifa to tell us about our HSE performance.

So from the HSE performance, we really had a good start of the year. In terms of -- we had 0 LTIs since the start of the year. We are proud to have achieved so far almost 22 million safe working hours without LTI. In terms of process safety, we had 0 incidents of Tier 1 and Tier 2, which demonstrate a strong operational performance in our facilities. Also in terms of the kilometers driven through the inspection of our pipelines and the facilities, we are proud that we have a good record so far 2.7 million kilometers driven year-to-date and the total is 10 million since 3 kilometers without motor vehicle incidents. So we really hold a strong performance in HSE, and we pray to God that it will continue the same.

And we're also very proudly to say we published our sustainability report for 2025. We encourage all of you to access this report. So it's the annual report is published. The sustainability report is also published. We encourage our -- I encourage all to access those, which are in our website.

Good afternoon, everyone. So on the growth and future aspirations for OQ Gas Networks, we continue to expand our natural gas network to meet the demand of the country for natural gas in the short and medium term. Our expansion of the network continues on a healthy pattern. As you can see in 2026, we project that our pipeline by the end of the year will be 4,435 kilometers. And this is underpinned by the 2 projects highlighted on the right, which are currently under construction, and we have them part of our regulated asset base. So in terms of our natural gas growth, it continues on the predictable RAB model, and there's a healthy growth that is going on the next 2 years as our -- as per the price control period.

Thank you, Ali. And also in the coming slides, I'll take you through the financial performance of the company for the first quarter. Just to start with, we'd like to give some key highlights to start with that Q1 profit compared to last year, similar period is higher by 7.1%. Also, our regulated asset base has increased with an average annual increased rate of 5.3%, which is in line with our expectation. And also it's worth highlighting that in March, the company also announced 2026 dividend policy, maintaining an attractive payout. Once it comes to our also cash flow, as our CEO mentioned, and we will be explain further, our operating cash flow continue to be high, stable and predictable, supported by attractive RAB terms. And once it comes to our OpEx, we managed to recover through our OpEx allowances under the RAB framework almost 28% of the expenses. And finally, our debt capacity still remain healthy, which showcase OQGN. Here, I'd like to highlight that the company performance, specifically on total income and profit for the period Q1 2026 compared to the same period last year. To start with, our total income increased by almost 31% and this was mainly due to the increase in construction activity. Moving to the net profit, you can see that our net profit also increased by almost 7.1%, which was mainly driven by the increased construction activity plus the increase in our asset base, which we'll be showing you in the coming slide. And it was partially also offset by the additional borrowing which we took. You can see that our borrowing cost is increasing slightly. But overall, it was a healthy quarter and our profitability is 7.1% higher compared to last year. Here, we would like to show the income buildup net of construction cost. This is worth highlighting and explaining we hear in the previous also investor calls that there was a little bit confusion of construction costs. As you are all aware of that OQGN follow IFRIC 12 accounting standard, where whatever growth project, whatever capital expenditure we do, we capture it as a cost. You can see it in our P&L as a construction cost. And then we capture it with an additional margin, which is equal to our WACC 7.79%, and that's what will be reflected on the top line where you see our construction revenue. If you do the net, we'll give you the construction margin, which we are highlighting here in orange. But the key message also we want to highlight here, you can see that year-on-year, our core income, which is income from concession assets also is increasing. And specifically, if we look at Q1 2026 compared to Q1 2025, we can see an increase of almost 6%. And this slide also, we're just sharing an overview of the cost. As I mentioned in the previous slide, this is a construction cost, which you can look at it that basically how much capital expenditure the company had in the years. And if we specifically look at Q1, it's almost OMR 18 million compared to the same period last year, and this is the driver for the increase in construction revenue as we showed in the previous slides. Moving on to the OpEx and administrative expenses. If we compare the Q1 2026 with the same period last year, you can see there is a slight increase, which is mainly an inflationary increase. And as I highlighted in the key highlights that we managed to recover through our OpEx allowances under the RAB framework, almost 98% of these expenses. Here, we'd like also to highlight that overall the growth in the quest on the left-hand side of the slide, you can see that our asset base is increasing year-on-year. And if we specifically look at the closing of 2025 compared to the first quarter, you can see already there is a 1% increase and the average growth for the last 3 years is almost 5.3% which is in line with the expectations which we have. On the right-hand side of the slide, you can see that our capital structure remain robust. And you can see our key debt ratios are still below the industry average and our peers. And we see also the restriction which we have under our existing facilities, specifically to the net debt to RAB ratios, it's up to 0.7 whereas we are almost 50% of that capacity, which showcases OQGN capacity to leverage for the growth back into the rate. Thank you.

Thank you to the management team. So now we will move to the question-and-answer session. [Operator Instructions] Yes, we have a question from Sashank Lanka.

I have 3 questions, if that's fine. The first one is this is the last year of your Price Control 3 mechanism. Can you give us any guidance on CapEx that we should look at this year. Obviously, CapEx did go up in 2025 versus what you had in '24 and '23. That's the first question. The second one is in terms of your dividend policy, you have announced OMR 0.0111 for this year. how should we forecast dividends in 2027 and beyond? And the third question is basically related to the next price control mechanism and the WACC there. Any initial thoughts there?

Thank you, Sashank. I'll take one by one question. First of all, this is not the last year of our price control. 2027 would be the last year. And whatever guidance we gave earlier, maybe just a refresher in the current price control, the regulator allowed us for a total capital expenditure of OMR 192 million. On top of that, we got also additional approval of Sohar-Fahud loop line, which was OMR 102 million, totaling OMR 294 million, which is approved by the regulator within this price control period. So far, we achieved almost 60%, and we're just entering year 3 and we have 2 years. And we are sort of confident that we can achieve up to, let's say, 90% of that overall plan. And why not 100% is not because of any delays or anything. But all this assumption was done, let's say, based on assumption. And when we are executing this project, there is some reduction in overall cost and there was some optimization on the scope and certain projects were delayed by different stakeholders also. Mansoor, do you want to highlight anything further.

I think you said it. So we are confident we'll be finishing the price control within what your estimated 90%. All the projects that we have anticipated have gone ahead. If there's any delay just because either the final FID is not granted by the shipper or maybe there is an optimization after the contracting of the either the scope or we're able to negotiate better deals. So it's just an efficiency and a few of them, the FID is a bit helped by the shipper.

So just to clarify, so the Price Control 3 from '24 to '27, the total CapEx is OMR 296 million. That's in line with the OMR 294 million. So no changes to that, yes.

For the second question, it's also to correct that the dividend payout, which is agreed is 11.2, not 11.1, which will be for the year 2026. And again, this was discussed in detail with the Board -- between the Board and the management until we come up with this policy for 1 year. And again, we will keep you posted once we are more near towards the end of this period on 2027 dividend -- sorry, dividend policies. What was the third question.

Yes. Anything or any initial guidance on the next price control and the WACC there?

Yes. I think we're starting that exercise with the regulator. The work is ongoing. It's too early to say. So we haven't had any figures on the market.

Yes. So usually, we submit by April next year to the regulator, our initial proposal, and we've already started kicked off the cycle. We expect by end of the year, we will have gathered all our business cases together and we'll be submitting according to the time lines agreed with the regulator. So it's too early to anticipate, but we are mindful of market conditions and also our growth look ahead and OpEx requirement that we just -- we are in the process of articulating our story to the regulator. So this is something is dynamic. We'll keep you posted as we go on with it.

[Operator Instructions] Yes, we have a question from Shamood.

I have 2 questions. My first question is, as you mentioned that out of the total of OMR 294 million, almost 60% you guys have already incurred and the remaining, you expect to go up to 90%. So that's close to OMR 90 million within the next 2 years. So should we expect that the construction revenue should be close to -- if this number is correct, close to OMR 95 million, OMR 96 million if the company is able to achieve the 90% of the OMR 294 million allocated during the current price control?

Yes. But just it's worth mentioning also that in this overall CapEx, which was approved OMR 94 million, there are some acquisitions. Usually acquisition directly comes to the finance income because there is no construction ongoing. Construction revenue comes only for whatever project we are building from scrap. Whatever asset we acquire directly, the revenue will be coming under the finance income.

Yes. So that brings me to my next question. So there's the construction revenue and there's the finance income. Would you please be able to assist me in terms of understanding what is exactly the difference between these 2? And how do you come up with these numbers? Construction revenue and finance income.

Yes. We are following IFRIC 12 accounting for concession agreements. This is part of IFRS requirements. So basically, if I try to simplify it for you, you can look at it that whatever you see today in our P&L, which is the construction cost, this is what we are, let's say, spending or value of what then for our ongoing growth projects, whatever new pipeline we are building. And whatever you see in financing -- and just to continue on this, how it will work, whatever we spend, you see it as a construction cost, we will charge a markup on it, which is our margin, which is 7.79%, which is equivalent to the WACC which we have. And you see that amount coming as a construction revenue on the top line. If you take the net of them, the impact is only whatever we are gaining on the bottom line is the margin, which is highlighted on orange in the previous slide when I was explaining it, we can go back. Yes, whatever you see here is in orange. So it will be always offsetting the construction cost revenue. And whatever you see on the finance income, it has some other component, but mainly it's the return on our asset base, whatever already we have is capitalized. That's how we kind of think to it.

Okay. Okay. That actually makes sense. That's clear. Now my last question is in earlier calls, the management has given us guidance that the regulated asset base in the medium to long term is expected to increase by 3%. We have seen obviously some higher increment in the last year. So should we expect this 3% number to be there in the medium to long-term guidance? Is it still there?

We are -- we also mentioned earlier that the growth on the natural gas is coming also to a plateau. And we are doing our level best to work with the shipper and regulator if there are any other networks or maybe growth potentials within the natural gas. So -- for the natural gas, it is we have already interconnected the network to wherever the countries in every industrial area of the country. And we are mindful there might be other opportunities that the company need to consider such that we sustain a reasonable growth. This is something yet we are studying along with our key stakeholders. Do you want to say anything on this?

Yes. I think what else I can add is the recent growth is because of the success we had in the projects that we already sanctioned. But in terms of maintaining the 3% what we try, as the natural gas plateaus, we're working very actively in trying to increase and acquire any additional natural gas assets that are still not under the operation of OQGN as well as compensate it with any new business development opportunities, which we are quite actively pursuing. And I think we're hopefully making good progress on.

Maybe just I add also, we are not talking about short term here. Short term, still we see all the capital expenditure. And this is something we're talking about, let's say, medium and long term. But in the short term, in our radar still, we see many good opportunity for growth in natural gas also whatever already we have committed or whatever we have got approved in PC3, as we mentioned, this is something which we are working on till 2027. And beyond that, again, there are some opportunity, but we are saying that whatever my colleagues are referring to is more of towards the end of midterm and long term, the maturity will be achieved.

And also, just to bring to the attention of everybody, for example, we managed to also bring some projects that were not originally in the price control. For example, this burtis, it was secured along with the shipper. This 192 or 193 kilometer of 42-inch was not originally in the price control. And what is happening, the shipper and the regulator now they're becoming cautious at what time to give the FID such that they don't want to anchor -- because you can imagine once it is put in our books, we start claiming revenue for it. So they're trying to be -- to strike a balance between having a good look ahead, but also with minimal impact to the financials of the various parties. So that's maybe the reason why we are not maybe able to confidently give a figure on growth. But also as my colleague said, with the gas network, it is coming to a plateau. We are now focused in docom but also our focus on other opportunities. And I think it is not secret. We were working on this green hydrogen concept of common used infrastructure. But as everybody knows, because of what is happening globally, this whole venture has a bit slowed down. However, the country still, as we see it, is still pursuing this as an option. And if OQGN support is required, then surely, we have the readiness in terms of skills and also financial position.

Any more questions from the participants, please raise your hand and unmute yourselves. It seems that we don't have any more questions. So we would like to thank you for joining us today on this call. And we would like to inform you that this presentation is recorded. It will be available in our website. Have a good day, and thank you so much again.