Saudi Arabian Oil Company (2222) Earnings Call Transcript & Summary

Welcome to Saudi Aramco's Half Year 2021 Earnings Conference Call. [Operator Instructions] I'll now hand over to Fergus MacLeod to begin.

Hello, and welcome to this audio webcast discussing Saudi Aramco's half year 2021 results. I'm Fergus MacLeod, Saudi Aramco's Vice President of Investor Relations. And it gives me great pleasure to be joined today by Amin Nasser, our Chief Executive Officer; and Ziad al-Murshed, our new Chief Financial Officer. Our webcast today will comprise a presentation followed by a question-and-answer session and we anticipate the entire call lasting around an hour. I'd like to remind you that this webcast and conference call are being recorded. Before we start, I'd just like to draw your attention to this cautionary statement. During today's presentation, we may make forward-looking statements that refer to estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note on this slide. And please also refer to our regulatory filings and website for more details. With that, I'll now hand over the call to Amin.

Thank you, Fergus. Welcome, ladies and gentlemen, and thank you for joining us. I am pleased to report that our performance in the first half 2021 demonstrates the growing confidence of the energy markets in a strong recovery after the lows of 2020. While there is still some uncertainty around the lens and dips of the challenges posed by COVID-19 variants, we have shown that we can adopt swiftly and effectively changing market conditions. Our strong results reflect the strong rebound in worldwide demand, and we are heading into the second half of this year more resilient and flexible as the global recovery gains momentum. It is my great pleasure to now introduce Ziad al-Murshed, our new Chief Financial Officer.

Thank you, Amin, and welcome, everyone, to the first half earnings call, and I hope you're staying safe wherever you are in the world. Before we get started, I'd like to briefly introduce myself. I joined Aramco 30 years ago, and my career has taken me across the business from frontline operational roles in upstream and downstream to a variety of commercial and leadership roles. It's been an exciting journey, and I've had the pleasure of seeing our company's enormous strengths firsthand: our performance, our reliability, our focus on scale and cost and above all, our people. And I know I have a tough act to follow from my predecessor, Khalid Al-Dabbagh, who many of you know. So I'm honored to be stepping into the role of CFO as the company continues its remarkable journey. What I'm hoping to do today is share with you the underlying story behind the dashboard of numbers that you've seen in our reports and how Aramco story is evolving amidst the operational and financial performance figures. As you've seen since the start of the pandemic, Aramco has been both resilient and flexible in the face of this once-in-a-lifetime demand disruption. We've stayed the course, and I believe our hard work for decades in building resilience is paying off. As vaccination rates pick up with billions of vaccines administered globally, economies are reopening and returning gradually to pre-pandemic levels. As a result, demand is returning, and we're in a strong position to capture the upside as recovery gather space. Of course, we will supply the affordable and reliable energy that the world needs to support global economic recovery and will do so at low-carbon intensity. We've also achieved key strategic milestones across our business in upstream, in downstream, in portfolio optimization and in financing. But none of this is possible without a fit and healthy workforce. So let me begin by providing an update on our ongoing pandemic response. Our first priority is the well-being of our people and their families. It's why we rapidly rolled out our own vaccination program for employees and their dependents at the start of this year. Takeup was high, and I am proud to announce that nearly 98% of our 70,000 strong workforce and more than 70% of their dependents have now had a vaccine, which helps keep our people safe and ensures the continuity of our operations. But even with the vaccine rollout, we remain vigilant. In line with the guidelines from the Saudi Ministry of Health, we continue to strictly enforce social distancing and mask wearing throughout our offices and facilities, and we offer working from home for those who are medically vulnerable. I pay tribute to everyone at Aramco for the patience and adaptability they have demonstrated throughout the pandemic. We are proud that despite all of the challenges and disruption, our operations have remained uninterrupted with 100% reliability. With that, let's look at the market context. Last year, of course, saw one of the biggest collapse in oil demand since the second world war, but it's now clear that the global economy and oil markets are starting to recover. Widespread COVID vaccination programs have resulted in the easing of restrictions. And combined with the ongoing stimulus measures, are fueling a robust economic recovery with tailwinds for oil demand in the second half of the year. As you can see in the blue bars of this chart, forecasts call for a recovery in global oil demand to pre-pandemic levels by next year. As a leading supplier of low-cost and low-carbon intensity crude oil, Aramco will be a key enabler of that recovery, so we are confident in the outlook. Looking back at the first 2 quarters of the year, we clearly see the recovery in oil demand and more importantly, with discipline in supply, we saw a significant increase in oil prices and downstream margins. Now let's focus on the first half and the progress that we've made in delivering Aramco's strategic objectives and continuing to maximize shareholder returns. In our Upstream business, we completed the Ain Dar and Fazran crude oil increments in the Ghawar field. These increments are targeting a combined production capacity of 175,000 barrels per day. Looking forward, the Marjan and Berri crude oil increments are now in the final stages of detailed engineering, and we expect them to come on stream by 2025 with a combined capacity of 550,000 barrels per day. In our gas business, the Hawiyah Unayzah Reservoir Gas Storage program is also in its final engineering phase. It's planned to provide up to 2 billion standard cubic feet per day by 2024, adding further flexibility in meeting the domestic demand. In the Downstream, we safely started up Jazan refinery, and we are on track to reach its targeted capacity of 400,000 barrels per day. We're also making strong progress in the integration of SABIC. Our chief synergies are ahead of plan, and we've optimized our go-to-market strategy for all products. I'll take you through those activities in more detail in a moment. We remain committed to the global energy transition, and we view renewable energy as a complement to our own energy products, not least in the Kingdom with its vast solar and wind resources. With that in mind, we are evaluating potential projects with partners to make investments in renewables. We will also continue to pursue our long-term plan to unlock and redeploy capital, and we'll continue to reinforce our balance sheet to optimize capital structure and maximize shareholder returns. As part of this plan, we recently completed the lease and leaseback transaction of our crude oil pipeline network, which raised $12.4 billion, and we will continue to pursue other potential opportunities that unlock capital to enable long-term shareholder value creation. We also continue to diversify funding sources and expand our investor base, and we're delighted with the global investment communities positive response to our international dollar Sukuk. This gave us access to about 100 new investors looking for Sharia-compliant financial instruments. Last but certainly not least, we are focused on developing people and on the workforce of the future. Earlier this year, we launched the Altamayyuz Finance and Accounting Excellence Academy to help in the growth of financial services in the region and form a highly skilled talent pool. This is a first of its kind collaboration between leading international and domestic accountancy firms and global investment banks, partnered with one of the top business schools in the world. Let's now dive into more detail about our progress integrating SABIC into the Aramco Group. As a member of SABIC's Board of Directors, I see value levers being used not only from the Aramco Group perspective, but also from the SABIC perspective. Our controlling stake in SABIC accelerates our downstream strategy by helping us leverage petrochemical growth opportunities and generate considerable value in the form of synergies that impact our bottom line. We expect to capture value of between $3 billion and $4 billion of annual recurring synergies by 2025 with the majority of this value coming from procurement, sales and marketing, supply chain, stream integration, feedstock optimization and maintenance. So far, we're well ahead of our plans, but nevertheless, we're intensifying our efforts to expedite execution even further and to identify additional opportunities. With that overview, let's look at some of the numbers for the first half of the year. In H1, we generated net income of $47.2 billion and free cash flow of $40.9 billion. This strong performance and high level of free cash flow generation supported our dividends of $37.5 billion for the first half of the year. Looking at the details, we see that net income more than doubled from H1 of last year with improvements in both Upstream and Downstream. Upstream delivered an EBIT of $85.4 billion in H1, which is a 63% improvement over H1 of last year, mainly driven by an increase of around $27 a barrel in realized oil prices, partially offset by lower production. Our Downstream delivered EBIT of $9 billion, mainly due to higher margins, performance improvements, the consolidation of SABIC's results and favorable inventory effects. This strong performance led to strong cash delivery in H1 with our cash balance rising by $12.3 billion to end H1 with a balance of $67.6 billion. Three key elements to note: firstly, the strength of operating cash flow is driven by our ability to capture higher crude oil prices as well as Downstream and chemicals margins. As you can clearly see from the chart, H1 cash flow from operations more than covered CapEx and dividends. Separately, net proceeds and borrowings of $9 billion mainly included $12.4 billion from the crude oil pipeline transaction and $6 billion from our inaugural international Sukuk issuance. This was partly offset by the scheduled payment of $5 billion to PIF for the second installment of the SABIC acquisition. Finally, despite this borrowing, our gearing further reduced from 23% at the end of 2020 to 19.4% at the end of June. Our financing framework is clear and has 3 pillars: prudence to maintain sufficient capacity in the face of price and volume volatility; optionality and execution flexibility, which is achieved by diversifying our financing sources and expanding our investor base; and, of course, efficiency, which is achieved by working across the group to optimize financing cost. The objective remains to maintain an optimum capital structure, a diversified and expanded investor base, a strong balance sheet healthy cash balances and a strong credit rating. Now let's zoom in a bit on CapEx, where we continue to exercise financial prudence and discipline when it comes to capital allocation while investing for the future. We continue to demonstrate the flexibility in our capital program. As you can see, after being able to flex down our capital expenditures last year in response to the market downturn, we were able to quickly flex up with signs of economic recovery. This is one of our competitive advantages as we bring incremental supply from our high-quality, low-cost and low-carbon intensity resources. We continue to expect 2021 CapEx to be approximately $35 billion, which is a 30% increase from 2020 at a time when the industry has reduced capital investment over the cycle. Given that we are the major producer with lowest upstream carbon intensity and lowest cost, it makes both environmental and economic sense for incremental global oil demand to be met by Aramco. As we optimize our capital program going forward, we have a unique and significant opportunity to accelerate our growth in line with our strategy through the participation in the Shareek program, which was recently announced by the government of Saudi Arabia. The word Shareek in Arabic literally means partner, and this win-win public private partnership is intended to drive economic growth and job creation by offering incentives for large companies to invest. We're thankful to the government for this program that could offer attractive incentives for a range of our strategic investments, thereby enhancing their economics and accelerating our strategic growth. As we deliver long-term sustainable growth of our core business, we're focusing on upstream liquids and gas and on downstream. First and foremost, we're increasing our maximum sustainable capacity from 12 million barrels per day to 13 million barrels per day. This will allow for volume growth of the low-cost, low-carbon intensity oil the world needs. We're also growing our gas business to meet the growing captive domestic demand of commercial rates of return and to provide feedstock for our blue hydrogen plants. In the Downstream, we're focusing on improving performance through SABIC's integration, asset transformation and expansion of our global trading business. We're also focusing on further derisking our upstream position through expanding dedicated outlets for our crude oil that have high conversion rates into chemicals. As we grow, we will continue to optimize our portfolio and unlock and redeploy capital while retaining control of operations. We're also continuing our focus on affordable low-carbon energy. As I mentioned earlier, we have the lowest upstream carbon intensity of any major producer. Our upstream carbon intensity of 10.6 kilograms of CO2 emissions per barrel of oil equivalent in 2020 is around half that of the OGCI 2025 target, which is 20 kilograms of CO2 emissions per barrel of oil equivalent. This is the result of decades of long-term reservoir management and leveraging advanced technologies. We are proud of this leadership and determined to maintain it as we believe it is a significant competitive advantage in a lower carbon world, especially with our high-quality prolific reservoirs and the advanced technologies we deploy in these reservoirs. At the same time, we're intensifying our focus on affordable low-carbon energy, especially the potential rapid growth in hydrogen demand, again, taking advantage of our high-quality reservoirs to develop large-scale, cost-competitive carbon capture and storage opportunities. Before we take your questions, let me summarize. Our strategy is on track to deliver value to our shareholders, and we remain positive about the prospects for future growth. We've demonstrated our resilience once again, and we now see positive and growing momentum in earnings and cash generation. We are effectively executing our portfolio optimization program to unlock and redeploy capital. We continue to diversify our funding sources and expand our investor base in line with our financing strategy. And we declared a dividend of $37.5 billion for the first half of 2021, which, combined with our CapEx was more than covered by our free cash flow. Thank you for listening.

Thank you, Ziad. I would like to say a few words in conclusion before we take your questions. Our financial performance is strong. But even more importantly, we are making good progress in delivering our strategy. We are beginning to accelerate our future growth, increasing investment in sustainability and the supply of low-carbon intensity, low-cost energy that the world needs as it recovers. This acceleration in growth will be supported by the Shareek program. We are achieving our downstream integration and expansion goals, and maximizing the value of our assets by redeploying capital to higher-return areas. For all these reasons and many more, my team and I remain optimistic for the future and the value that we can create for society and for our shareholders. Ziad, Fergus and I now look forward to taking your questions.

[Operator Instructions] I'll now hand back to Fergus.

Thank you, Jordan. And I think I see the first question coming from Mazen Al-Sudairi, Al Rajhi Capital in Riyadh.

Congratulations on a good set of results. My first question is on the Shareek program. Could you outline Aramco plan for the Shareek program in terms of size and outline incentives for Aramco, if you can? Second question is global supply of oil -- global investment in oil and overall supply is declining. Is Aramco planning actually to use this opportunity to revise the strategy of CapEx or to maintain it? Could you please share your thoughts around this?

Thank you, Mazen. So one is about the Shareek program, the partnership program. And are we yet ready to talk about what scale our participation in that program might be and what the support we might expect from the government to accelerate some of our growth programs as part of that overall scheme. And the second one is that many commentators believe that the global industry may be under investing new sources of hydrocarbon production. And is that -- do we share that view? And do we believe that, that creates an incentive for us to move more quickly in that area?

Thank you, Mazen. With regards to the Shareek program, it's a voluntary program. And the purpose of the program is to basically increase the participation of the private sector and local economy by creating incentives. So it's a win-win for the government and the private sector. We are participating in the Shareek program. We are currently reviewing a lot of projects, benefit out from these incentives. And these incentives could be either in terms of infrastructure, regulatory frameworks that are required or financial or taxation or tax incentives that might be offered. All of these are being put on the table, reviewed by Saudi Aramco. And I would say it's a once-in-a-lifetime opportunity, which we intend to make the maximum use of it, and we are really thankful to the government for this win-win public-private partnership that will help us accelerate our strategic growth. As I said, details are still under development, and -- so is the incentives that are currently being negotiated. We have put a dedicated team diligently evaluating candidate projects, focusing on localizing our supply chain, other sustainability projects like crude to chemical and hydrogen, blue hydrogen, both programs that are important for us to continue to maintain our leadership position globally when it comes to emission and diversify our income over the long term. But these projects are -- require some incentives. And this is what we are doing right now in participation with the government. With regard to oil supply, as highlighted by Ziad earlier, we are the lowest cost producer and the lowest in terms of emission. We see a lot of drop in investment when it comes to crude oil supply in the mid- and long term, as highlighted by a lot of the analysts. And we are capitalizing on the opportunity by first, increasing our MSC maximizing capacity from 12 million to 13 million barrels, and we are currently working on the front-end engineering. But this is an opportunity. And of course, we are trying to benefit out of the lack of investment by major players in the market by putting investment in this sector.

Next question comes from Alastair Syme at Citigroup.

Congratulations on the results. Can you talk a little bit again about Shareek, just follow on from that first question, the first question, specifically around the renewables sustainability? I did note that the government did award PPAs to 7 projects back in April under the second phase of the National Renewable Energy program. So clearly, some developers seem to think the economics are already pretty good for this sort of investment. So just trying to understand why more incentives might be needed or where could incentives enhance the rate growth?

Thanks, Alastair. So I think the question is, again, just to dig into the renewables issue. And how does that relate to Shareek? I think as Ziad mentioned, sustainability is a big focus, accelerating investment in sustainability is a big focus of the projects that we're examining for participation in Shareek. But specifically, I think your question is about renewables. And does it need incentivization?

Thank you, Alastair. We are partnering currently with PIF and ACWA Power with regard to the renewable program seeking opportunities in the renewable program. The government announced a plan to be 50% of the utility sector will be on renewable, 50% will be on gas. Basically, the utility sector now, it means a lot of liquids that is currently going to the utility sector will be replaced either by renewable or by gas. And in both cases, it will, I feel that liquids for export markets at a much higher price. And at the same time, it will help us increase efficiency and reduce emission at the Kingdom. So the program has a lot of benefits to the Kingdom and to the private sector. The Shareek program also -- for example, I'll give you an example on the hydrogen, blue hydrogen. Blue hydrogen is also -- require a lot of carbon capture and sequestration. And this is where we look for incentives. If I give you 2 examples of the sort of mimic what the Shareek intention is that Maritime Complex in Ras Al-Khair, I think Salman Maritime Complex and King Salman energy city, both programs were close to completion. Basically, it will help us to build tankers, platforms, fix our barges and maintaining our fleet, both engines manufacturing. It will increase our reliability. Reliability is very important and critical to Saudi Aramco. The Shareek -- I mean before the Shareek program, the Kingdom in order to facilitate and support these programs at Ras Al-Khair, King Salman Maritime Complex and the energy city where we brought the biggest player in the energy sector to that energy city. It supported the infrastructure, built the infrastructure, Aramco -- gave the funding required for Aramco to build the infrastructure, where the partners did not incur any cost in terms of availing that infrastructure. So basically, the government helped a lot in this by bringing all of these major players around -- from around the world to the Kingdom. At the same time, we benefited, as Aramco, by being partnered with a lot of companies by increasing our reliability, we have seen in the attacks in Abqaiq and in Khurais during the pandemic with a lot of manufacturing facilities were shut down, we benefited a lot by maintaining our reliability by relying on our local suppliers. So I think these major industries, manufacturing hubs in the Kingdom helps to maintain Aramco reliability. We are enjoying today 100% of reliability. Even during that, we were at 99-point something. So it shows how much is that our local content and having all these industries in the Kingdom helped the company to maintain a high level of reliability.

So it was just on the blue hydrogen. Do you anticipate the blue hydrogen being primarily from the domestic market? Or do you see the export opportunity is starting to grow?

Well, we are looking at export opportunities in terms of blue hydrogen. Currently, blue hydrogen require in addition to the ammonia as a transport media for audit and all of that and shipping it to markets. It require a lot of carbon capture and sequestration. And we are doing a lot of work in terms of front-end engineering for carbon capture and sequestration to avail that. And we are also engaging with different markets around the world in terms of off-take agreements. So we are doing all that what's required to avail blue hydrogen. At the same time, we are in discussion with different markets. The major markets that you're looking at today in terms of demand is Japan and Korea in terms of demand for blue hydrogen. And as these markets grow, it will increase the availability for us to -- and the opportunity for us to produce more blue hydrogen for export market.

Next question, I think, is coming from Karen Kostanian from Bank of America. Karen are you there?

Yes. I'm here, Fergus. Congratulations on great results and Mr. al-Murshed, welcome to your inaugural call with us. I'm going to be on the regional. I'll also ask a question about the Shareek program here. Do we -- am I understanding correctly that the $35 billion CapEx guidance for this year does not include the Shareek program? And if it doesn't, would you also consider stretching your potential leverage targets of 5% to 15% to accommodate the Shareek program? That's my first question. And my second question is that back in the day when Aramco IPO-ed and the world was normal, you also considered potential aggressive dividend policy. And now as the world returns to normal, whether you plan to revisit that policy?

Okay. So 2 questions there, I think. One of them is about, is there anything for Shareek in 2021 capital spending guidance. And would the incorporation in the future cause us to think again about any of our leverage targets, the leverage targets that we talked about on the go. And I think you used the word normal about 2019. It seems a long time ago now, but we did give capital spending guidance at that time of $40 billion to $45 billion. And I think the suggestion perhaps in your question was whether that's an indication of the direction of travel from the $35 billion of guidance that we've provided for 2021, if I understood you correctly, Karen.

Yes, that's right. And my second question was about the dividend, yes.

And how that relates then to dividend, yes.

Okay. I will take the -- thank you, first, Karen. And I will take the first question, and Ziad will address the second question. Yes, $35 billion does not include anything from the Shareek program yet. As I said, we are currently working, identifying the opportunities for these programs, and it is very important and critical for us because it's not important for growth only, it is important for sustainability because we are looking at a large project that will help us to diversify at the same time, reduce our emissions. This endpoint is the crude to chemical and blue hydrogen. And the previous guidance about leverage, and I think you're talking about the 5% to 15%, it will all depend on the opportunities that we are looking at right now. We will -- we have always maintained capital prudence and strong balance sheet. As highlighted by, in the presentation by Ziad, you've seen the cash balance by the end of the year. We are in a very strong position going forward. And with the right incentives, it should help us really to meet our aspiration, not only in terms of growth, but more importantly, in terms of maintaining and leading an carbon emissions in the long term. Ziad, if you want to address the second question.

Yes. Thank you, Amin. Thank you, Karen, for the question. On the 5% to 15% gearing range, we look at that as a general range. It is cross cycle that we're looking at. And obviously, it's a general range. We have a lot of considerations that we have and a lot of issues or factors to balance. We basically have a financing strategy that has -- that looks at 3 main things: prudence to maintain sufficient capacity with the price and volume volatility; optionality and flexibility, which is why we are diversifying our financing sources and expanding our investment base -- investor base; and of course, efficiency, working across the group to optimize financing costs. But the objective as opposed to having a hard gearing range is to maintain an optimal capital structure, diversified and expanded investor base, a strong balance sheet, healthy cash balances and, of course, a strong credit rating. Now that closely ties to how we look at the pecking order on our cash. So I want to make sure that you understand that the Shareek program is coming, offering a lot of opportunities, but that does not mean that we will not continue our tradition of financial prudence and capital discipline. So we have clear priorities for cash that have not changed, and we don't anticipate them to change soon. First, of course, is looking at or addressing and catering for sustaining CapEx. We then maintain the ordinary dividend. And after that, we look at growth opportunities, again, exercising the financial prudence and capital disciplines that used to from us. And then finally, we look at a mix of additional distributions, further deleveraging or a combination of both. I just do want to remind you that historically, the company has distributed special dividends. Of course, 2020 was not a good year for the industry. So you didn't see that. But if you go earlier in our history, not much earlier, we have actually distributed.

Next question, I think, is coming from Martijn Rats at Morgan Stanley.

A lot of questions about the Shareek program, but I also have one. If you look at the returns that are available for you to invest in -- sort of under this program, including the incentives. I was wondering if you could say something about how those returns would compare to the returns that are available to you in the upstream. Because of course, historically, the returns in the upstream have been very compelling. And I was wondering if they are sort of a benchmark or a threshold for you to meet elsewhere, too. Or whether the return requirements in investments under this program are somehow lower because they are of a sort of different nature. So the return of comparisons is sort of -- that's one thing I was very interested in it. And secondly, I was wondering if you could say a few things about, yes, the increase in the MSC to 13 million. In principle, the logic is relatively straightforward. You have low emissions barrels and a lot of them at low cost and the rest of the world is not really investing all that much. But the history of those types of expectations, I can say from experience, I have to admit, has been mixed at best. And for the next 2 years, it doesn't look like the underinvestment is so obvious. The world still has a lot of spare capacity. The U.S. rig count is kind of coming back. What gives you longer-dated confidence that the world indeed will need 13 million barrels of MSC from Aramco?

Thank you, Martijn. So I think the first one is about what are the expectation returns for projects under Shareek could they ever be competitive with the returns in the upstream. I think we've said publicly in the past that it's very difficult for anything to compete with upstream returns in oil, which are very high indeed. But there are other aspects of the upstream and gas, for example, which has been very successfully invested in, it doesn't have the same returns as oil. But what are expectations for Shareek returns. And your second one, I think, is about how can we feel confident that the world's going to need 13 million barrels a day of our low-carbon, low-cost production capacity. I'd just remind you one thing, Martijn, I think we talked about during the IPO that you don't have to be producing constantly at that level for it to deliver very good returns. The optionality that comes with the ability to flex upwards when the world has a supply disruption elsewhere can itself to be extremely valuable. And I think we had gave some numbers during the IPO on that. So I just sort of caution that you don't have to believe 13 million on a sustained basis in the near term to believe that, that would be a very good investment. But anyway, I believe those are your 2 questions, Martijn.

Okay. Thank you, Martijn. I will address the second question, and tell Ziad to go through the first question. Now with regard to the 13 million, yes, if you look at the next 2 years and in terms of what MSC capacity of 12 million and markets and how much of that we will utilize, you must be right. But don't forget, it will take you almost a good number of years to bring that capacity to the market. The front-end engineering alone takes 2 years. You didn't do anything on the graph, just front-end engineering, approximately 2 years. When we do our plan, we look at the long term, I always cautioned the international markets about what is coming ahead of us. When there is a need for additional capacity, it's not going to come easy. Any increment, it takes 5 to 7 years, at least. Some increments, they take 8 and 9 years to bring them to the market. So for us, just front-end engineering in the next 2 years, you are looking at front-end engineering. Then you start the construction. Then you will take a good number of years, 5 to 7 years just to bring these facilities on stream. So it's -- you have to plan for the long term, you will need to put the investment and anticipate the growth that you will see in the future. Considering that you are the lowest cost producer and you have the lowest emissions. So you have the biggest opportunity in terms of placing that in the market. Not to mention our aspiration and how much we will put crude to chemicals and all of that, so we need that additional capacity for these projects that we are planning in the future. I'll just say a little bit about it. There is not much of upstream. If you compare downstream to upstream, no, they are not the same. However, when we do any downstream investments, we look for healthy returns, matching any investment anywhere in the world. We always plan for healthy returns for our upstream investments. And this is part of also the incentive program as part of the Shareek that we are looking at and discussing. Ziad?

Yes. I just want to say that, again, a reminder, financial prudence, capital discipline is not changing with or without Shareek. Like Amin explained earlier, Shareek is a voluntary program. So we're looking at this as an opportunity. We're looking specifically at the projects. Internally within the company, management is going to treat those exactly like any other project. We're still going to go through the gated process. We're still going to be disciplined on what types of projects we're targeting. Like Amin explained earlier, we're talking about strategic projects. So we're focused on localizing our supply chain, not only to improve our -- the response times of our contractors. But also long term to help produce our costs when our suppliers are nearby. We're also focused on -- I mean, I spoke about the sustainability project, but we're also focused on crude oil to chemical. And just keep in mind that crude oil to chemicals is strategic for us because it derisks our upstream barrels by converting a big percentage of them into -- or the molecules into chemicals. As we explained earlier and I explained in the presentation, the specific projects for Shareek are still under development. We're still working out the numbers and the priorities. But a good idea to keep in mind is that we're looking for double-digit returns. What those will end up specifically being, we're still working on the numbers.

The next one comes from Michele Della Vigna from Goldman Sachs.

Congratulations on the strong results. Two questions, if I may. The first one is on the potential increase to the 13 million barrels per day of available capacity. I was wondering, as you start the engineering process for that increase, how do you think it's likely to come in terms of enhanced processing facilities and drilling versus potentially the development of new fields? Where do you think that the highest return opportunity to enhance the capacity comes from? And then going back to your low-carbon investment, you've been a leader effective in low-carbon oil production for decades. But as you start to think about blue hydrogen carbon capture, do you see breakthroughs in this technology that could make it more attractive from an economic perspective than what we've seen until now?

Thanks, Michele, 2 very interesting questions. So are we at a point where we can talk in more detail about what the optimum economic strategy for the expansion to MST to 13 million will be, what's the best way to bring that forward in terms of the balance of new increments, new fields or from existing? And then secondly, on the blue hydrogen, do we see any sort of technical frontiers that might accelerate the economics? I think there's a big push globally in terms of trying to improve the economics of decarbonized hydrogen. And what are we thinking about that?

Thank you, Michele. That increase from 12 million to 13 million will mainly come from offshore expansion, while maintaining our low depletion rates strategy. That is a strong -- a very important element for the company to maintain a low depletion rate in our field when it comes to production. So we -- majority for the time being, it's going to come because we have the highest and biggest reserves that is -- remaining reserve is in the offshore, while we also bring some from the onshore development. With regard to the low-carbon R&D or technologies, you are absolutely right, most of our research have 9 centers out in the 3 centers. A lot of it is focused on how do we capitalize on technologies to reduce our cost and shift more of our, for example, gas to hydrogen, while at the same time producing cost. If you look at chemical, for example, crude to chemical, will help us a lot to reduce our emission, maximize value by going down the value chain and also diversify our income over the long term. But a lot of technologies are being developed by Aramco, for example, thermal crude cracking and catalytic crude cracking that helps us to shift 70% of the barrel to chemical while at the same time reducing our capital cost by 25% to 30%. Carbon capture and sequestration is also an area of interest because the biggest cost element in converting gas to hydrogen is carbon capture and sequestration, and how much you can reduce the capital spending by capitalizing on new technologies. And there is a lot of development in that area that we are currently working with our partners to help reduce the costs there. And maintain the leadership for blue hydrogen because at the end of the day, you have to compare blue hydrogen with green hydrogen. And today, blue hydrogen in terms of cost is lower. So how green hydrogen is achieving some -- a lot of development in terms of reducing the costs over the long term. Similarly, the advantage for us is blue hydrogen. We have also similar advantage, by the way, here in the kingdom for green hydrogen. It's an area of interest as well. However, we are working on both and looking at how can we reduce our cost because the capital cost is a key, how do you reduce. Similarly, reservoir. Today, if you look at carbon capture and sequestration, how do you identify the best reservoir with the highest porosity and the highest permeability because that will reduce your costs, it will reduce your compression requirements. How do you identify fields for sequestration that is close to your existing plants that can take advantage of these high volumes of CO2 that you will be sequestering.

Just maybe add to that, we are working or utilizing SABIC's capability in ammonia production as well as some value chain in that products. Now in terms of cost optimization, we optimize not only when we bring the increments in, but as we're producing, we have one of the top 10 most powerful computers in the world to use in simulation just to optimize production. We're closely looking at production costs from different fields and constantly optimizing where that cost is or how to optimize that cost. But again, like Amin said, we're doing the detailed engineering. We're going -- we're taking this one step at a time. And I'm sure a lot of adjustments will be made along the way.

Next question is from Gordon Gray, HSBC.

Two quick ones really, if I could. The first one is you've talked about dedicated outlets for oil to petrochemicals. And on that subject, more specifically, it's probably 2 years on now from when we started to hear about the link up with Reliance Industries. I wonder if you could update us on if there's any progress there that you can talk about? And the second one is a broader question about portfolio optimization. You just had the update, very welcome $12.4 billion from the pipeline deal. Wondering in general terms, if you can talk about what may be considered not core? What sort of things are you looking at for future optimization of the portfolio?

So a broad question, I think, about the whole issue of equation down the value chain, whether that's through to chemicals or placement. And the specific opportunity potentially in India of Reliance. And the second one, the criteria for portfolio optimization and scale, how do we make those decisions as to the which assets are candidates for that program?