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

Welcome to the Saudi Aramco's Half Year 2023 Results call. [Operator Instructions] I shall now hand over to Mr. Peter Hutton to begin.

Hello, and welcome to this audio webcast discussing Saudi Aramco's half year 2023 results. I'm Peter Hutton, Head of Investor Relations at Aramco. And it gives me great pleasure to be joined today by our CEO, Amin Nasser; and CFO, Ziad Al-Murshed. Our webcast today will comprise a presentation followed by a question-and-answer session, and we anticipate the entire call lasting up to an hour. I would also like to remind you that this webcast and conference call are being recorded and 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 in this slide. Please also refer to our regulatory filings and website for more details. With that, I will now hand the call over to Amin.

Thank you, Peter. Welcome, everyone, and thank you for joining us today. As Aramco marks its 90th anniversary, I am pleased that the company continues to deliver strong performance. This continued success is driven not only by the quality of our asset but also by the focus and dedication of all my colleagues and our wider stakeholders, and I offer them my sincere thanks. With the second half well underway, we are looking ahead with further confidence and optimism that our expansion and growth strategy will help meet the world's energy needs and our ability to maximize long-term value for our shareholders. Aramco continued to deliver strong performance in the first half of 2023 and our growth strategy remains on track. Our high reliability, high flexibility and low cost of production underpinned our ability to generate strong earnings and cash flows and a robust balance sheet. This further demonstrates our ability to deliver through oil price cycles. Despite the market volatility, short term global oil demand forecasts showed signs of improvement. Oil demand is expected to reach record levels of over 103 million barrels per day by the end of this year, reaching pre-pandemic highs, with further growth expected thereafter. We continue to expect that oil demand is likely to grow in the mid to long term. With our increasing confidence in these fundamentals and further progression into the cycle, together with steady execution of our largest capital program and strong financial position, we have today announced our intention to share even further upside with investors through our performance-linked dividend. We are announcing this earlier at the top end of the announced range and on a higher cash flow base. Ziad will cover more of the details shortly. Let me now turn to our progress in delivering on our strategy. Our strategy is to invest in our growing integrated portfolio by remaining the world's preferred supplier of conventional low cost, lower-emission upstream energy, and at the same time, build leadership positions in low-carbon fuels & solutions. This strategy is on track and we are delivering our milestones through the largest capital program in our history by investing in upstream, downstream and low-carbon fuels & solutions. In Upstream, we are capitalizing on the need for ongoing investment in our oil expansion and we are increasing gas production by more than 50% by 2030 to meet increasing demand, generating additional liquids for export and enabling a blue hydrogen value chain. Our Downstream business is focused on capturing integration benefits and de-risking Upstream. We have made major investments in Asia to support our liquid to chemicals throughput to 4 million barrels per day. We are advancing the development of decarbonization options with our focus on low-carbon fuels & solutions with shipments of ammonia to key markets and investment in PV solar projects. Also, through our investment in the national ecosystem of thriving businesses, we are both increasing local content and increasing Aramco's supply chain resilience and flexibility. All of this is being done from a position of financial strength and competitive advantage. Overall, we are pleased with the progress we are making. With that, let me now hand over to Ziad to discuss the details of our first half 2023 performance.

Thank you, Amin. Welcome, everyone, and thank you for joining us today. I want to start from where Amin ended, so I'll detail our key strategic achievements during the first half to which Amin alluded and then I'll move on to financial performance and dividends. We're progressing very well in executing our strategy and we are on schedule with our record capital program. Our guidance remains unchanged at $45 billion to $55 billion for this year, and the profile going forward is also unchanged, increasing to peak around mid-decade. Specifically, in Upstream, our crude oil capacity expansion plans are on track with plant progress being made in engineering, construction and procurement activities on our crude oil increment projects. The first increment from the Dammam development is expected to be on-stream by the end of next year followed by Marjan and Berri fields in 2025 and Zuluf by 2026. In gas, key milestones are being delivered to achieve our target to increase gas production by more than 50% over 2021 levels by 2030. Progress continues to be made on the Haradh & Hawiyah gas compression projects, both of which are expected to reach full capacity this year, with 5 of the 9 plants already completed, followed by the Tanajib Gas Plant, which is part of the Marjan development to be on-stream by 2025. In unconventional gas, design and construction activities continue on the Jafurah field and gas plant, which are planned to start production by 2025. We also commissioned the Hawiyah Unayzah gas storage facility and are proud to announce that the maximum injection target was reached. This is the first underground natural gas storage facility of its kind in Saudi Arabia. Our Downstream strategy is also underway by continuing to grow our presence in key markets and to direct up to 4 million barrels per day of our liquids into a dedicated liquids-to-chemicals portfolio. On the domestic front, EPC contracts were awarded for the $11 billion Amiral complex, which is a new world-scale petrochemical facility at the SATORP refinery in Jubail that is expected to have one of the region's largest mixed-feed steam crackers. Internationally, we recently completed the strategic acquisition of a 10% interest in Rongsheng petrochemical company in China, and we broke ground on a new refining and petrochemicals complex also in China. These 2 investments will enable Aramco to supply about 700,000 barrels per day of crude oil to high chemical conversion assets in China. In addition, S-OIL broke ground on our largest investment ever in South Korea to develop one of the world's largest refinery integrated petrochemical steam crackers, pioneering our thermal crude to chemicals technology. We also completed our acquisition of Valvoline's global products business, thereby advancing our international lubricants' growth strategy. In low carbon fuels & solutions, the group entered into a consortium to invest in the development of 2 PV solar mega projects that are expected to have a combined capacity of 2.7 gigawatts, which puts us well on our way to achieve our target of 12 gigawatts of renewables by 2030. Also, the group partnered with TotalEnergies and successfully converted oil derived from plastic waste into internationally certified circular polymers for the first time in the region. We also successfully delivered 3 shipments of accredited lower-carbon ammonia to several key markets for both fertilizer production and power generation. And we signed an agreement with Linde Engineering for developing new ammonia cracking technology, further supporting lower-carbon energy solutions. Finally, on lower carbon fuels & solutions, we were the lead bidder in the largest ever voluntary carbon credits auction, which reflects our focus to offset some hard to abate emissions. Our localization effort continues to strengthen our local supply chain through our Namaat program. We signed an agreement with Baosteel and the Public Investment Fund of Saudi Arabia to establish a steel plate manufacturing complex in Saudi Arabia. This is the first facility of its kind in the region, helping to localize our supply chain and reduce our reliance on imported steel. We also signed an agreement with DHL supply chain for a new procurement and logistics hub in Saudi Arabia to enhance supply chain efficiency and sustainability for the industrial, energy and petrochemical sectors. Financially, we continue to optimize our capital structure with a across cycle view. So we balance between optimum WACC, credit rating and financing needs throughout the years of the cycle. In that regard, we continued to smoothen our debt maturity profile by prepaying all remaining notes related to the SABIC acquisition. This not only significantly smoothened our debt maturity profile, but also generated savings of $2.8 billion during the first half of the year, which translated into a net gain of $1.5 billion. Overall, we are progressing very well on our strategy. Turning to our key operational and financial highlights for the first half. We generated $62 billion of net income and a free cash flow of $54.1 billion. We also paid $39 billion of dividends in the first half, which is a 4% increase in our base dividend, which we've always said would be sustainable and progressive. And we have also announced our intent to introduce a mechanism for sharing more upside with our performance-linked dividends. At the same time as increasing our base dividend, we further reduced our balance sheet gearing to negative 10.5%, down from negative 7.9% at the start of the year. Our ongoing focus remains on maintaining a high investment grade credit rating across oil price cycles. As I mentioned earlier, we are progressing well with implementing our growth plans. Our capital investments are essentially on plan amounting to $22.4 billion during the first half, including external investments, which is about 30% higher compared to the same period of last year. Our full year capital investment guidance remains unchanged at $45 billion to $55 billion. Our financial results in the second quarter remained solid compared to the first quarter despite the softer market environment. Upstream EBIT was strong at $56.7 billion, a bit lower than in Q1, in line with the reduction in average realized oil prices. This was partially offset by seasonally higher gas production in the second quarter. Downstream EBIT was $800 million in Q2, which is down throughout the first half compared to the same period of last year, mainly due to weaker chemical and refining margins as well as negative inventory valuation movements resulting from much lower prices compared to last year. Group net income in Q2 was very close to that of Q1 when you consider that about half of the difference in net income between the 2 quarters is actually due to the higher gain on prepayments of debt achieved in Q1 and not due to underlying performance. ROACE, which we report on a 12-month rolling basis, was 25.9%. Overall, despite market softening, we delivered robust performance in the first half with the ongoing ability to capture the upside. And speaking of the upside, let me cover the wider business environment before I turn to dividends. Economic forecasts continue to improve with global GDP growth trending back towards the 10-year pre-pandemic historic average. Monetary policies of central banks across the world have helped to moderate inflation levels, and we are clearly seeing inflation moderate, although it is still relatively high compared to historic levels. Having said that, we see oil demand continuing to be resilient, and the consensus is for high growth and a significant increase in demand in the second half of the year from a range of independent forecasters, including the IEA and others, as you can see in the chart. This increase is expected to come from several key areas and not just from China. China's demand has already been stronger than expected with the first half of 2023 already above 16 million barrels per day. This is 1 million barrels per day higher than the same period last year and more than 2 million barrels per day higher than the pre-pandemic levels. Okay. This brings us to our announcements on performance-linked dividends. First, I want to remind you of our dividend framework, which is designed to maximize shareholder value by providing downside protection through a sustainable and progressive base dividend and a mechanism to share the upside with shareholders through a performance-linked dividend, all while heavily reinvesting in the business through unique growth opportunities. With the results of the fourth quarter of last year, we increased the sustainable and progressive base dividend from $75 billion to $78 billion. With the results of the first quarter of this year, we introduced a mechanism for performance-linked dividends and sharing further upside in the range of 50% to 70% of the group's annual free cash flow net of base dividend and other amounts, including external investments. Today, as a result of continuing strong performance and stronger financial position, we are announcing the decision to increase performance-linked dividends in 3 ways. First, the first performance-linked dividend will be based on the combined annual results of 2022 and 2023. This results in a significant increase in performance-linked dividends as a result of including the record free cash flow of year 2022. Second, this first performance-linked dividend is based on 70% of the group's annual free cash flow net of the base dividend and other amounts, including external investments. This is right at the top of the announced range of 50% to 70%. And third, because we are combining year 2022 performance with 2023, we are paying the performance-linked dividend much earlier starting in the third quarter of 2023. The payment of the first performance-linked dividend is intended to be distributed over 6 quarters in order to take us through to the fourth quarter of 2024, after which we intend to base performance-linked dividends on the full-year results of 2024 and distribute it over 4 quarters, as previously announced. When we do the math on 70% of the combined free cash flows of 2022 and the first half of 2023, after deducting base dividends and external investments, and then divide the total over 6 quarters, the result is a first payment of around $10 billion, which will be paid in the third quarter of 2023. We will then adjust future payments based on actual performance through to the end of 2024. After that, as I said for year 2024 performance and onwards, performance-linked dividends would be determined based on full year results of each year within the previously announced range of 50% to 70% and distributed over the subsequent 4 quarters. This announcement demonstrates the strength of our balance sheet and our previously communicated plans to share excess cash balances with our shareholders. Like we always said, we're only building cash balances to ensure ability to fund our growth plans, and when we are comfortable with that, we would distribute excess cash to our shareholders. Now it is important to keep in mind that all dividends are at the Board's sole discretion after considering our financial position and ability to fund commitments, including growth capital plans in accordance with the company's dividend distribution policy. In summary, we have continued to deliver strong results both operationally and financially in the first half of the year. We remain focused on delivering shareholder value through fiscal discipline applied to a unique set of attractive growth opportunities, through diversifying financing sources and optimizing capital structure across the business cycle and through enhancing distributions in a way that provides protection on the downside and sharing of the upside. Thank you very much for your attention, ladies and gentlemen, and we are looking forward to answering your questions.

[Operator Instructions] I shall now hand back to Mr. Hutton.

Thanks, Alex. And we'll begin with the first question from Mazen Al-Sudairi of Al Rajhi Capital.

Hello? Can you hear me?

Mazen, you're online.

Yes. Congratulation for the great results and the new mechanisms or policy of dividend. Actually, I have 2 questions. The first, as you plan to pay the PDL (sic) [ PLD ] at the high end of the guidance, 70%, and you plan to combine the annual '22 and '23 to drive the free cash flow dividend, what does that actually indicate, that you are more confident in profitability and cash flow going forward? And that drives us to other question, what is your view on demand-supply dynamic in the near term as well as the medium term?

And I'll take the second question and Ziad will elaborate on the first. With regard to demand-supply fundamentals, as you have seen in the slides, we -- in second half, we're looking at based on different forecasts between 103 million and 104 million barrels of demand. Of course, if you want any predictions beyond that, different forecasts shows a growth at around -- in '24 and beyond at around 1.5%. However, we need to take into consideration that the jet fuel is still at 85%. Yes, a significant growth, but it is still at 85% compared to pre-pandemic levels. So there is still a lot of potential, almost 1 million barrels of additional jet fuel that will be needed to meet just the pre-pandemic level. The second point that needs to be taken into consideration in the mid to long term with regard to demand is what we are seeing in the second half is 103, different forecasts, 104. With all of this recessionary signals and economies not at their full potential, China is still growing. So there is a lot of potential if the economy start to pick up in '24 and beyond and if China continued to grow in terms of their industry and other energy-intensive business like the liquid to chemical that is growing big time in China, there will be significant demand growth going forward. With regard to -- we don't see any anticipation of any downturn in demand, the range, if you compare the second half of 2023, 2.5 million barrels, compared to the second half of '22. And most of that growth that you're seeing is coming from developing countries, especially, as I said, China. Our expectation is that in China and despite the slower-than-expected economic growth -- demand growth, it is still expected to grow by almost 1.5 million barrels higher in the second half of '23 compared to the second half of 2022. So the expectation -- the market volatility is quite high and we believe sustained investment in the sector is important for the global economy. For the first part of your question, Ziad?

What we've announced today in terms of including 2022 performance in the performance-linked dividend is in line with our previous thinking of cash flow priorities. We're sticking to our cash flow priorities. We're still doing -- first priority is sustaining CapEx, second priority is sustainable and progressive dividend, and you've seen that in both the sustaining and the progressive. And then the investment in growth. And then additional deleveraging and/or additional distributions. Well, in the past couple of years, we've been doing massive deleveraging. Our gearing has gone down. Now, it has reached negative 10.5% in terms of balance sheet gearing. Our credit rating is exactly where we want to be. And like I've explained before, we run a lot of scenarios in terms of cash flows going forward to make sure that we can fund our growth plans. And we've always promised that once we're comfortable with that, that we would increase distributions. So to answer your questions, we are comfortable with where we are. We have a very strong financial position, and it has strengthened even further in the first half. We are well along in our capital program. So the -- that reduces as well the uncertainty of our financing needs or funding needs. And as a result of all of this, we believe that it is good to share significant upside. Because like we promised, we're not keeping cash. We were not building cash for the sake of building cash. As a result, we've decided to include the performance of 2022 with 2023 as one bucket. That is the basis of calculating the performance-linked dividends. As a result, at the end of the first half, now that the -- because we're including 2022, we said, "Well, there's no reason to wait until first quarter of 2024 to start distributing because part of this is 2022 results." So the decision was to start the distributions in the third quarter. So far, we have the first half as actual. So we based the calculations of the performance-linked dividends on the performance of years '22 and the first half actuals of 2023. And going forward, the adjustments will be made based on the performance of -- in the second half. What that means is payment of -- or the first payment -- if you just do the math, the first payment which will be paid in the third quarter will be just about $10 billion of performance-linked dividends on top of the $19.5 billion of base dividends. So the total is about $29.4 billion that will be paid in the third quarter. The performance-linked dividends will, like I said, be adjusted, and we will pay it in -- on a quarterly basis until the end of next year, 2024, which then takes us to be in sync with the cycle of full year results for 2024.

Our next question is from Karen Kostanian from Bank of America Merrill Lynch.

Yes, gentlemen. Congratulations on the dividend decision. I just have one clarifying question about the dividend, Ziad. So this $9.9 billion was calculated for the 6 quarters of combined 2022, 2023. What is going to be the fourth quarter -- the third quarter 2023 distribution be calculated upon? Just the previous quarter? Or is -- I just need a clarification on how to compute this going forward.

Sure. The intent is to combine the full year 2022 with the full year 2023 performance in determining the performance-linked dividend. Because we decided to distribute earlier, starting this third quarter, we don't have the performance of the second half yet. And so the adjustments that will be made will be made on a recalculation of '22 and '23 put together. So as we go forward, we will adjust the calculation based on actual performance that we have at that time. So if you will, we would add the third quarter, then we would add the fourth quarter in order to come up with a total payment, and then adjust the distributions accordingly so that the total payments of performance-linked dividend will be based on the full year results of '22 and full year results of '23 put together in one bucket.

The next question is from Iyad Ghulam of SNB Capital.

My question is about the free cash flow. You had a very strong free cash flow generation in H1. However, we know the CapEx has been at the lower end of the guidance. So how can we think about that considering the early activation of the dividend policy and the -- your CapEx plans for the full year?

And we are on track for the 2023 record investment of -- based on the guidance of $45 billion to $55 billion. You are right, the first half CapEx and external investment is $22.4 billion. So you cannot extrapolate and multiply that by 2. You will come up to $45 billion. We are expecting to have completion of a number of projects and accelerate the investment in our capital program in the second half. So we are comfortable with the guidance of the $45 billion to $55 billion that we have announced earlier. And hopefully, by the year-end, we will be in that -- within that range.

Yes, just to build on what Amin said. So yes, it is not a straight line. If you noticed the first quarter was $8.7 billion. The second quarter was $10.3 billion. So these are not equally divided throughout the year. There are many considerations like the timings of contract awards and calendarization of some of these. So we're still comfortable with the $45 billion to $55 billion.

The biggest also element is any external investment. And we are in discussion with a lot of investment planned in the pipeline currently that are being discussed. And don't forget, whatever invested in the first half is 30% higher than the same capital at the same time last year.

Our next question is from Christyan Malek of JPMorgan.

Congratulations on an excellent result. Two questions and a bit more sort of fundamental, One on sort of the macro outlook and how it pertains to your spare capacity. It's clearly [ Audio Gap ] the demand discovery, Ziad, I think in quite a different conference calls, there's been quite a range in terms of your outlook on demand. And clearly, it's surprised positively. Now in the event that it's surprised negatively over the medium term, is there flex for you to delay your spare capacity increase -- sorry, I don't mean spare capacity, I mean your production increase. But I mean it's spare capacity in the context of the Kingdom. Is there flexibility to delay your production strategy plans? And I say that particularly in the context of, one, if demand does surprise negatively; and two, that you have all the liquid production through the very differentiated energy strategy of the Kingdom in terms of being far more efficient in your demand consumption. So I just wondered to what extent is there flex within your frame? Has that been considered at the Board level? And my second question. I know you've done a huge amount of marketing, investor roadshows across the world. And I wonder at what point would you consider -- what are the sort of prerequisite or factors that you would need to consider a listing outside the Kingdom. I'm not trying to understand when or what. I just want to understand what sort of framework are you looking at to consider that being a tangible sort of move for you that sort of you assume to meet in near to medium term.

I need to point that the maximum sustained capacity is for the shareholders. When we announced going in 2020 from 12 million to 13 million barrels of additional capacity, 1 million barrel is based on the request of the shareholder, because when during the -- as part of the concession agreement, anything related to the capacity and the monthly production targets is something for the shareholders. So for us, we are -- since we got the request to increase the capacity, we started a number of projects to execute, Marjan, Berri, the Zuluf and all of these increments. And they are progressing very well in terms of execution and we are on target to complete them as per plan to meet our maximum sustained capacity. And the way that we view the market, we think demand will grow in the mid to long term. Don't forget, we are a company that always focuses on the long term. The signals that we are getting are just on the slides, as I mentioned earlier. If you are talking about 103 million to 104 million barrels by -- in the second half of this year based on different forecasts. And this is not with a full economic recovery from different countries because they are at different levels. And China is still picking up growth potential. And as I said, also there is a lot of potential growth in the aviation industry. And as economy improve going forward, there will be additional demand. And even if we consider at the low end a 1.5% increase, in a 100-million-barrel system, you're talking about 1.5 million to 1.7 million barrels of additional demand. And considering the depletion of 5% to 7%, you need -- and you need to have huge investment just to maintain the current decline that we see in existing mature fields. At that level, you need a huge investment. And to meet that growth of 1.5% -- even at the low end of 1.5%, you need really significant investment and you need to be prepared. With regard to listing, this is something -- we have always said this is up to the shareholders to decide if they want to list in different jurisdictions other than Tadawul.

Christyan, I want to make sure you don't read too much into the non-deal roadshows that we're going through. They're -- as the name implies, they are non-deal roadshows. Expect us to continue with the same level of engagement, both -- at all levels and in all regions. And expect that to continue into the future. So we just like engaging with you guys. So expect that to continue.

Next question is from Biraj Borkhataria of RBC Capital Markets.

Thanks, Ziad, for the clear explanation on special dividend. That's very helpful. Two questions, please. The first one is just thinking about cost inflation. We're seeing a lot of commentary around supply chain issues across upstream, downstream and even in low-carbon. Given you have the biggest CapEx budget in the industry at this point, you'll probably have the most data points. So could you give some color on what you're seeing currently as it regards to inflation and if there are any areas in particular are becoming worse or easing up? And then the second question is just on the MSC targets. I know those are set by the government. But I mean you've said previously you think in decades. And given your view on oil demand over the long term, your task is to deliver on the target set by the government. So could you talk at all about the potential of your asset base beyond 2027 as we look to 2030, 2035? Should we be thinking about 14 million or 15 million barrels a day MSC if you keep the level of CapEx going? Just color on that would be helpful.

And with regard to the cost inflation, we experienced cost inflation like many other companies in the oil and gas sector. However, we have partly mitigated inflation by renegotiating contracts and commissioned work at lower prices. A lot of our expansions that happened -- started in 2020, in mid-2020 when the market was low. So we were able to secure good contracts at a very reasonable cost. Aramco also benefit from domestically sourced supply chain through the -- our IKTVA initiative, In-Kingdom Total Value Add initiative, and 63% of our goods and services were sourced from our IKTVA in 2022. And we have a longer-term aim of 70% by 2025. So we are much better prepared to mitigate any increase in inflationary of materials and commodities by our localization program and our long-term contracts with our suppliers and providers. Now with regard to MSC, as I say, this is an item for the government to decide on whether they want to increase MSC or not. We're not going to speculate about '27 and beyond. All -- what I can say is that we have significant reserves. Our reserves are published. And we continue to replace what we produce every year almost at 100% or more. So that program of exploration is not like other companies. We maintain our exploration program for gas to identify additional gas. That's why our additional gas supply, which is more than 50%, is mainly because of our additional gas resources that we identify every year. And for oil, we have been successful for several decades now of replacing what we produce. And we will continue to avail additional resources in oil and gas.

The next question is from Kim Fustier of HSBC.

Firstly, I wanted to go back to the balance sheet. Could you give some more color on what you mean by strategically deleverage the balance sheet? With the performance-linked dividends related to 2022 profits that you've announced today, unless oil prices rise further, then it looks like Aramco is likely going to releverage the balance sheet in the next few quarters. You're obviously not in net cash position. So could you talk about where you see gearing settling as a kind of mid-cycle target? And then secondly, are you able to talk about how Aramco is implementing the OPEC+ and the voluntary production cuts, particularly with respect to crude grades? Are you reducing production of heavy-grade first, for instance? And what impact is this expected to have on your realizations against Brent?

I'll answer the second part of the question. The first part will be answered by Ziad. The cut we have implemented fully. Whenever we get a target every month, we implement based on the numbers that we get of production targets. Now it is up to the company based on our markets and our customers to decide. There is no -- the targets that we get, it does not specify which grades that we need to cut. It specifies that you need to reduce at this level. And it is up to the company to optimize what the different -- we have 5 grades, and we optimize based on our customer base and the need of different markets. Ziad?

Kim, on your balance sheet and gearing question, we -- like we've always said, we're more focused on high investment-grade credit rating. Our balance sheet gearing, nevertheless, since you asked about it, has gone down to negative 10.5%. And if you notice -- if you're relating that to the performance-linked dividends, keep in mind that the performance-linked dividends is a percentage of free cash flow after the base dividend and after deducting other amounts like external investments. So at the end, you can think of it as we are -- in terms of the performance-linked dividends, we're keeping up to or maybe -- around 30% of the free cash flow after all these deductions. So I wouldn't make a direct connection into releveraging of the company. Like I said, we're in a very strong position. Beyond this point, we're comfortable that we can fund our growth programs. Beyond this point, we would be holding cash for the sake of holding cash, which actually destroys value for our shareholders, which we obviously don't want to do.

Our next question is from Mohammed Al-Thunayan of Jadwa Investment.

Congratulations on the great set of results and the activation of the performance-linked dividend mechanism, which confirms further upside sharing. I have a question on the accredited lower carbon ammonia shipments and whether you're witnessing an uptick in demand, given that it's difficult to find offtake agreements? And is there any update on blue and green ammonia initiatives and targets?

Yes, I think the uptick in demand is there. There is a demand. We have signed MOUs, I would say, with customers in Japan and Korea. I think our customers that are planning to take the blue ammonia are waiting for the government incentives. We are confident that this incentive will come through. And for that, we are proceeding with our first phase, which is a major increment of blue ammonia. We're talking about 9 million tonnes of blue ammonia, which is one of the biggest in the world. And this is Phase 1. Engineering is ongoing and progressing very well. We are -- as I said, based on the certified ammonia shipments that we had to different markets -- and the customers are happy with all of these certified shipments that met their requirements and was put in good use in the different markets from Japan to Korea to Taiwan to India, we are -- it's a matter of them receiving the incentives so that we can go ahead with the offtake agreements.

Our next question is from Alastair Syme of Citigroup.

There's quite a lot of tightness in oil product markets as we start 3Q. I mean refining margins have picked up quite a lot. So I just wondered your perspectives on why you think the margins are rallying to the levels that are much higher than they were pre-pandemic. And then secondly, you've added quite a lot of capacity into the gas system this year in the Kingdom. Can you just give us some color on what's happening to the Kingdom's gas demand through the summer? And I'm particularly interested in how much oil burn is still going on in the Kingdom to power generation.

Alastair, can I just clarify your first question? Was that around refining margins or was it around demand volumes?

Refining margins, Peter.

Okay.

Yes. With regard to the gas, there is a pickup in demand in the Kingdom, but it's not like significant still. The plan is to go with the Master Gas System 3, which will avail gas to different utility centers. The renewable project is still ongoing. So it will take time until all of these gas avails are put into these different utility sectors across the Kingdom. And also the utility -- I mean, the solar and wind plants that are currently under construction will pick up. And that will really avail -- reduce the liquid burning. The plan is to reduce liquid burning -- eliminate liquid burning by 2030 by shifting 50%, as I said, of the renewal -- of the utility sector to renewable and replacing liquid burning, which is approximately in the neighborhood of 1 million barrels, especially during the summer months by eliminating that with gas and renewables. Definitely, we are also doing the gas storage, which will allow us -- the project started. We are at full injection capacity. By end of '24, we should be able to start reproducing that gas. That will avail significant amount of gas into the system that will be used especially during the summer. And you can reinject that gas when you have excess capacity in the winter. So we have excess, I mean, gas for the hydrogen as well program, and that's where we are also progressing very well in our blue ammonia by capitalizing on the gas coming from Jafurah. So additional gas potential is coming on-stream, especially also with Jafurah that we highlighted today. That will be on -- first plant, Phase 1, will be on-stream in 2025. And by 2030, we will have Jafurah at 2 billion. But gas is increasing by 50% to 60%, mainly to be utilized in-Kingdom to eliminate liquid burning supported by renewable for 50% of that sector. Ziad, anything on the margins?

Yes, on refining margins, the -- you can see that a lot of this is regional and it depends on what's been happening to refineries across -- demand that we talked about is demand for the finished products. Now how much of the value ends up being in the refining sector versus the rest of the value chain, depends on how much refining capacity you have. So you've seen a lot of refining closures in the U.S., for example, which is boosting the energy margins there -- sorry, refining margins there. So you see refining margins in the U.S. higher. Elsewhere in the world that may not be the case. What we are seeing is, compared to the first half of last year, we're seeing a drop in refining margins and a significant drop in chemicals margins. And we understand this is a cyclical business. Both of those, whether it's refining or chemicals, are cyclical. And we're kind of going through a down cycle on chemicals. But like we always say, we're a long-term investor, and we're focusing -- we're pushing ahead with our downstream plans nevertheless.

Our next question is from Anna Karenina of T Rowe Price.

I was -- coming back to the strength of the balance sheet, I was wondering what we should expect on debt supply. Now you've got a few maturities coming up. Would you -- could you please guide if you would just repay or would you prefer to maintain the gap here?

Okay. Anna, I'm going to summarize because the line wasn't particularly clear here. But I understood the question was around the maturities of the debt profile and are there any issues related to that?

One of our top priorities over the past couple of years has been to flatten our debt maturity schedule. The -- if you look a couple of years ago, the absolute majority of our debt matured by 2026, with relatively high parts maturing during these years. We -- most of that was due to the PIF notes as a result of the acquisition of SABIC, because if you recall, that transaction was mainly financed through seller financing. We have now completely paid that -- those notes out, and so our debt maturity schedule is now relatively flat. So absolutely no issues with this. We look at our debt maturity schedule over the next 50 years plus. And we've got a strategy of spreading out debt maturities across. So the short answer to your question is, absolutely, no issues with flattening it out over the last couple of years.

And our next question is from Henri Patricot of UBS.

Two questions, please, around petrochemicals. The first one, I wanted to just follow up on the earlier comments you just made about the industry being in a bit of a cyclical downturn. How long do you think it will be before we see an improvement in chemical margins? And then secondly, during the quarter, you announced that your successful plastic waste to chemicals. I was wondering how long do you think it's going to take typically to scale up this value chain.

I'm sorry, Henri. Can you just repeat that second question? It wasn't clear at this end slightly -- partly because of the line.

Yes. So sorry. The second question is around the processing of oil from plastic waste that you announced a few weeks ago, and I was wondering how long do you think it's going to take to have a fully scaled-up production process using this technology.

Okay. I will take the first question with regard to petrochemical and when would we see a pickup. I think it all depends. You see China is almost 50% of the market. China is picking up. It depends on how fast that they will pick up in terms of demand. As soon as they reach their full potential in terms of demand and the economy start really at full scale, that will really help the market big time. So as I said, China is an important factor in the chemical sectors and the more China starts picking up and recovering, the more demand that you will see from China. And that will really -- it creates a better environment for the chemical sector.

And just to add to this, Henri. Again, we're both a long-term investment -- investor. So the investment decisions that we make are not looking at the short term. And the other thing is we look at our downstream investments mainly with an upstream lens. So we have our liquids-to-chemicals program that's investing in converting our liquids to chemicals with the main objective of derisking our upstream position. On your second question, it's still not clear how long scale-up is happening. As you know, these things start with test cases and then reevaluate. And going forward, the group with its different members will announce as appropriate where -- if and when scale-up plans are in place.

I can also refer to an announcement that we put out on this 17th of July relating to this in partnership with Total and SABIC. So if there's anything further on that one, then you can always contact Investor Relations as well for supplementary information. Okay. With that one -- that's the last of the calls. I'd like to thank everybody for participating today, both for analysts and investors joining the call, particularly to the CEO and the CFO for taking the questions. Thank you very much. And as always, if there are any follow-up questions at any time, please don't hesitate to contact us in Investor Relations. We're always happy to answer your questions. Thank you very much. We'll speak again.

This concludes today's call. You may now disconnect your lines.