OQ Gas Networks SAOG (OQGN) Earnings Call Transcript & Summary

[Foreign Language] My name is Ahmed. I am OQGN Investor Relations Manager. Thank you for joining us today to discuss our -- thank you for joining us today to discuss our first half of 2026 result and performance. Before we begin, I would like to give a brief statement in Arabic. [Foreign Language] The structure of the presentation will be an overview and highlights of the operation and finance presented by the CEO, Engineer Mansoor Al Abdali; followed by the growth aspiration by Engineer Saif Al Hosni. Finally, Sultan Al Balushi, our acting CFO, will take you through our financial in details. After we finish the presentation, we will open the Q&A session. Before we begin, I would like to refer you to Slide #2 from this presentation, which is about the disclaimer statement. In today's course of discussion, we may discuss some forward-looking statements based on the information available for us as of now. Accordingly, we are not committed to keep the same views if any market condition changes. So to begin, I will hand it now to Engineer Mansoor.

[Foreign Language] Good afternoon, and good morning to all of you. Thank you for joining us in this session where we will be briefing you about the performance of OQGN for the first half of 2026. I'll be covering a very high-level operational and financial results. But my colleagues, Sultan Al Balushi and Saif Al Hosni, will take us into other aspects of this presentation, especially on the financial and the growth aspiration. Very proud about OQGN to highlight that on the safety part, we almost completed 24 million hours LTI-free hours. Despite the very large operations, we are currently undertaking in our core business, but also on our growth side where we are constructing a large project of 193-kilometer of 42-inch pipeline as well as other medium and small-sized projects. We're also very proud to, this year for the first half, to have delivered or achieved our highest quantity per day where we reached more than 137 million standard cubic meters in 1 single day in June this year. Another key highlight, we're also very proud to see we have transported for the first half more than 22 billion cubic meters of gas, almost more than 9% compared to the same period last year. If you move on, Ahmed. Another aspects that we are very proud of, and that's on the sustainability side, we're very proud to have been awarded the Platinum Award during Oman Sustainability Week on our ESG agenda. This was very much well received by -- and we have competed amongst very large organizations in the country. Another key achievement in this regard is our GHG emission reduction, especially in Scope 1 and 2, where we reduced this by more than 18%. So Ahmed, if we move on to the financial highlights. And in this slide, I will just highlight very key messages, and that's our profitability, which has increased by 6.7% compared to the same period in 2025, and Sultan will take us in more details about this very shortly. Our asset has grown since the year 2023 by 5%, which is in line with our expectation. And we are also able to recover more than 93% of our expenses from the regulator. By this, this is the key high-level highlights. Of course, we can dig deep into any aspects you want us to outline. But so Saif and Sultan will take us into more details, especially on growth and financial aspects.

Thank you. So OQGN continues to invest ahead of demand, expanding our natural gas infrastructure according to the price control plans. In the next 2 years, our strategic growth focus is on a combination of backbone expansions and infrastructure reach into greenfield areas across the country. Key growth projects for the next 2 years include the 193 kilometers Fahud-Sohar loopline, which is under construction. The Budoor Tayseer 31-kilometer pipeline and the 13-kilometer Duqm Port pipeline, which is under construction currently in Duqm. And that presents a summary of our current growth plans until the end of the price control period. And without further ado, I give the spotlight to my colleague, Sultan.

Thank you, Saif. Moving on to the financials. OQGN delivered a solid performance in H1 2026 compared to the same period last year. Total income increased by 7%, reaching to OMR 96.4 million compared to the same period last year. The growth was primarily driven by higher income from concession assets and increase in our construction activity. Net profit also increased by 6.7% to OMR 27.1 million. The increase reflects the strength and resilience of our regulated business model supported by the growth in concession assets. As you can see, the increase in our asset base led to an increase in our income on concession of almost OMR 3.6 million, which was partially offset by increase in our borrowing cost, mainly to leverage, to fund the growth plans, which we had during the period. Moving on to the income buildup net of construction costs. It's worth highlighting and explaining to the new investors also that OQGN follows IFRIC 12 accounting standard where for any new growth projects we execute, we capture in our P&L construction cost. And on top of the actual cost, we charge a margin of 7.79%, which is equal to our WACC, where you see on the top line of our P&L the construction revenue. The focus here is to show the sustainability of our income and to show the steady growth over the last 3 years. The net impact of construction cost and construction revenue is highlighted here in orange where we call it the construction margin. To focus on the H1 2026 performance, you can see that our overall net income increased by almost 6.7%. Moving on to the cost overview. As we highlighted in the first slide that our total revenue increase and one of the reason was increase in our construction revenue. In line with that, you can see that H1 2026 actual construction cost is higher than last year, which present that we had a higher capital expenditure for the period in this year compared to the same period last year. Moving on to the OpEx and admin expenses. You can see that the cost is well controlled. And if you see the increase compared to last year, it's a very minor increase, which is mainly inflationary increase, and it's worth highlighting that we managed through our allowance to recover almost 93.2% out of these expenses. Finally, looking at our balance sheet side of the business. You can see that our asset base has been growing over the last 3 years with an average growth of almost 5%. And if we specifically look at H1 2026 with the closing of December 2025, already a growth of 1.6% is achieved. Moving on to the capital structure of the company and our leverage capacity, you can see that these are the key ratios, which are monitored once it's come to regulated business. And you can see that OQGN net debt to adjusted EBITDA is at 3.8 almost, whereas the industry average is almost 5.5. And if we look specifically at net debt to RAB, our existing facilities have a restriction that we shouldn't borrow more than 70% of our RAB asset base. Today, we have outstanding -- the current ratio is around 0.36, which showcases the capacity, which OQGN has to leverage on the growth plans, which it has. In summary, OQGN delivered another strong set of results in the first half of 2026, driven by growth in income, growth in asset base, profitability while maintaining solid margins, strong cash flows and prudent capital structure. We remain well positioned to execute our plans and continue creating long-term value to our shareholders.

Thank you. By this, we will come to the end of our presentation. So now we will open the question and answer. [Operator Instructions] Yes. The first question is coming from Sashank.

I have a couple of questions. I think the first one is just on your CapEx guidance. During the Price Control 3 period. I think on the last earnings call, you said you spent about OMR 177 million in '24 and '25, and out of the OMR 294 million. And most of -- I mean, the remaining should be spent in '26 and '27. So can you give us the latest number there? How much have you spent versus your total CapEx during the Price Control 3? That's the first question. And the second question is just related to the dividend policy. We understand it is going to change from next year. So any update there?

Sashank, so for the CapEx, as we highlighted in our previous calls that the total CapEx approved under the current price control period is OMR 294 million, as you rightly mentioned. And we, as a management, believe that we can achieve up to 90% of that plan. And so far, we achieved almost 63% of overall plan. Moving on to the dividend questions. Our current dividend policy is still valid until the end of this year, which is OMR 0.0112 per share, and upon reaching towards the end of this period, the management again will look at different options, and we'll get the alignment and the approval of the Board. And accordingly, it will be disclosed in the market.

Okay. Great. Maybe just a follow-up on the next price control starting from 2028. Should we assume kind of a similar mechanism in terms of the time period? And WACC as well, any guidance you can provide on that?

So to answer your first question, yes, we expect the next price control period to be for 4 years starting 2028. As for the WACC, this is still a work in progress, and I think more clarity would come towards the end of next year.

Thank you, Sashank. We have another question from Taha Al Lawati.

[Foreign Language] This is Taha Al Lawati from Jabal Asset Management. I just have two questions. At the end of last year, you announced an acquisition plan, which just made me question, how many more ways of inorganic growth still exist in the market. So if so, are you pursuing or looking at those? That's my first question. My second question is on the OpEx. You mentioned that the increase was due to inflation. But from my understanding is that OpEx is adjusted to inflation annually. So can you just explain how the regulatory accounts for the future inflation and how the reconciliation occurs if the figure exceeds the regulators expected inflation?

So I'll take the first question, and then the second question, we'll see how we take that. So basically, OQGN's mandate is to consolidate all gas transportation infrastructure in the country under one umbrella. And it's distributed across greenfield projects or acquisition or asset transfer of existing pipelines that were built or operated by other entities. So the last acquisition, which was BP Ghazeer acquisition that happened last year marked a significant chapter in this M&A or acquisition strategy. We continue to pursue whatever is remaining across the country. There are not many because the company has already acquired or transferred assets of the majority of natural gas pipelines already. So we continue to deliver the mandate and transfer what is the remaining throughout this price control and the next price control, of course. These plans are submitted to the regulator upfront and are approved by the regulator. So we know what they are. And that's what comes into our mandate. But if we identify any acquisition that can add value to Oman Inc. or to OQGN, then we take these separately and we pursue them accordingly. That's for the first question. Do you want to start with the second question?

Just a follow up on the first question, a few if I may. So if these are submitted in advance, can we expect any additions in terms of like inorganic growth for this price control?

So currently, what we have is -- or what our acquisition plans are as per the plan submitted and approved by the regulator. Now whatever we would submit in the next price control is still work in progress, and more clarity would come towards the advice we get from the regulator next year. But for the current price control period, we don't expect anything out of the plan.

Yes. But Saif, also to add, this is in terms of acquisition, but also growth. If anything comes in the pipeline, the company always positioned nicely to take over those projects. And we can give you an example of Budoor, which was -- it was not in the price control. Saif, correct me here. But then this opportunity came along with the PDO and OQGN was recognized as the best entity to undertake this project, and which is progressing very nicely.

So for the cost question, there is an allowance given for the inflation at the beginning of the price controls. But the market dynamic change, different things change. And if the impact is not material, usually the regulators do not want to open the books during the price control period, and they keep it towards the end of the price control. On top of the inflation also, there might be some additional costs which are because of changes in law, which were not captured during our submission of the price control, which was 3 years back because they happened after the price control -- during the price control period. And if the impact is not material, usually, we submit all this towards the end of the price control and with the right justification and usually, the regulator verifies us and compensate us as a one-off in the beginning of the next price control period. Historically, you can see also in 2024, there were some costs related to PC2, around OMR 5.3 million, which we got compensated at the beginning of Price Control Period 3. Saif, do you want to add?

Okay. Understood. And just -- yes, if you have anything to add, you can go ahead.

So just to add to Al Balushi, as he explained, when we submit to the regulator, whether it's inflation in ERC or O&M or G&A, we incorporate whatever inflation is associated with those categories, either explicitly or implicit within our contracts and activities. And on top of that, there is an added overall inflation as taken from the NCSI figure on top of that inflation. So usually, this is how it's calculated between us and the regulator.

Okay. And just to follow up on my question. From my understanding, the OpEx allowance given by the regulator should recover all the OpEx costs expected to be incurred within the price control period. But what we've seen in the past quarters over the past years that the recovery rates rarely exceed 100%. So there are rarely quarters where the efficiency from OQGN is realized with a gain. Can I just understand where the deviation comes from? Is the OpEx guidance given from the company to the regulator more than what the regulators approve of? Or where does the exact deviation come from?