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

Welcome to the Saudi Aramco's Half Year 2024 Results Call. [Operator Instructions]. I should now hand over to Mr. Peter Hutton to begin. Peter, please go ahead.

Hello, and welcome to this audio webcast discussing Saudi Aramco's First Half 2024 Results. I'm Peter Hutton, Head of Investor Relations at Aramco, and I'm pleased to be joined today by Amin Nasser, President and CEO; and Ziad Al-Murshed, Executive Vice President and CFO. 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'd like to remind you that this webcast and conference call are being recorded and also draw your attention to this cautionary statement. Please also refer to our regulatory filings and website for more details. And with that, I'll now hand over the call to Amin.

Thank you, Peter, and welcome, everyone, and thank you for joining us on our earnings call today. Let me start by saying that Aramco continues to deliver strong performance, both operationally and financially. Growth in global oil demand is strong, reaching a record 103.2 million barrels a day in the first half of 2024, despite some headwinds in certain economies. We expect further demand growth in the second half of the year. We remain focused on our long-term vision and shareholder value and believe that a successful energy transition will require a variety of energies and technologies. I am pleased that we continue to progress on our goals. In Upstream, we continue to strengthen our liquids and gas capabilities, tapping into our fast reservoir to help ensure a reliable supply of low-cost and low emission energy for decades to come. In Downstream, we remain focused on accelerating integration through our liquids to chemical expansion to add further value across our global system. And in New Energies, we are making good progress in building renewable capacity and continuing work to develop a lower carbon hydrogen business in addition to CCS. All of this helps to ensure Aramco takes a leading role in providing global energy solutions. Now let me walk you through the key milestones achieved in our business areas in the first half. In Upstream, we are enhancing our liquid and gas capabilities to satisfy growing demand. Our liquids development are on track. The first phase of the demand increment is expected to come on stream later this year with major projects on Marjan, Berri and Zuluf in 2025 and 2026. We continue to make progress to grow our gas production by more than 60% by 2030 from 2021 levels, with contracts granted to enhance our gas expansion strategy, including contracts for Jafurah Phase 2, the Master Gas System Phase III and Fadhili Gas Plant. In LNG, we took further steps to build our global portfolio by capturing offtake and enhancing trading capabilities. We signed two hits of agreement for 20-year LNG offtakes with Sempra and NextDecade, providing a combined volume of 6.2 million tonnes per annum. The agreement with Sempra also offers a potential participation of 25% stake in the Port Arthur LNG Phase 2. In Downstream, we continue to increase integration with 52% of our crude oil production utilized in our Downstream system and further balancing our product portfolio between chemicals and fuels. We furthered our liquids to chemical strategy through MOUs for a 10% equity stake in Hengli Petrochemical with Rongsheng to explore further collaboration opportunities in Kingdom and China and started construction of a petrochemical complex in Fujian China. Further Downstream into retail, we completed acquisition of 100% equity stake in Esmax and a 40% equity stake in Gas & Oil Pakistan. This acquisition will expand our global retail footprint in high-value markets and unlock additional market opportunities for our Valvoline-branded lubricants as well as refined products. We signed a definitive agreement to acquire a 10% equity interest and horsepower train, which pioneers advanced transport solution and lower carbon fuel technology. This helps develop more energy-efficient internal combustion engine globally. The New Energies, our Solar BP projects are progressing toward our 2030 renewables target with today reaching full operating capacity earlier this year and Al Shuaibah 1 and 2, expecting to commence operation in 2026. We have also invested in three new projects with plans to come online in the first half 2027. We signed definitive agreement for a 50% equity stake in a company to develop a hydrogen network in Kingdom and MoUs to explore direct air capture opportunities and the deployment of heat batteries. All in all, we are taking concrete action to help deliver our energy transition and decarbonization strategy. Aramco continued to deliver strong performance with world-leading profitability, high cash flow and a strong balance sheet. These qualities were underpinned by our operational excellence, high reliability and successful execution of our growth strategy. We recently delivered two successful transactions in the equity and debt capital markets, both of which received strong demand from investors. This has broadened the base of our equity and credit investors and further improve trading liquidity in our stock. In line with our previous indications, the Board has declared total dividend of $31.1 billion variable in August, comprising of $20.3 billion of Q2 base dividends and $10.8 billion of performance-linked dividends for our combined 2022 and 2023 results. For the full year 2024, we continue to expect to declare $124 billion in total base dividends and performance-linked dividends with the remaining dividend payments, of course, subject to board approval. And with that, let me now hand over to Ziad to discuss the details of our second quarter performance.

Thank you, Amin, and welcome, everyone. Let me start by sharing the latest outlook on the global economy and oil demand. The global economy is expected to remain stable for the rest of the year. Global oil demand grew by 1.1 million barrels per day year-on-year reaching 103.2 million barrels per day in the first half. This is the highest ever level and is expected to grow in the second half. Forecasters expect second half growth from 104.6 million to 106.2 million barrels per day driven by ongoing recovery of global aviation and robust demand in China and further growth is expected with additional demand of 1.4 million barrels per day in 2025. Given this consistent growth in oil demand, combined with global inventories that are at the lower end of their 5-year range, Aramco is well positioned going forward with our roughly 3 million barrels per day of spare capacity of low cost, low carbon intensity barrels, which can be activated quickly and up to 1 million barrels per day of high-value liquids associated with our growing gas production, which is coming gradually by 2030. Against this background, let me now talk about our financial and operational performance. Our net income in Q2 was 6.6% higher than last quarter at $29.1 billion despite flat production and significantly lower refining margins. Upstream EBIT was $55.8 billion, up 1.8% quarter-on-quarter, driven mainly by higher realizations. Downstream EBIT was down at negative $0.3 billion, mainly as a result of weaker margins. Our capital investments were $12.5 billion in Q2, taking the total for H1 to $24.2 billion. Our full year capital investment guidance remains unchanged at $48 billion to $58 billion, and we will expect to provide an update with our Q3 results. Free cash flow was $19 billion, leaving our balance sheet strong with gearing of negative 0.5% at the end of June. Our 12-month rolling ROACE was 21.8%. This is well ahead of our peers, even though it is negatively impacted by almost $90 billion of assets under construction on the balance sheet that are not yet operational to generate returns. Without these assets under construction, ROACE would have been around 26%. This ability to consistently deliver strong financial performance was a key success factor in the two capital market transactions recently completed. These successful transactions were underpinned by our unique investor proposition, which I'll talk about more in a moment. The secondary public offering with a size of $12.4 billion came 4.5 years after our IPO. It increased our free float by around 35% to 2.4% and significantly increased share liquidity with average traded volumes up by around 60%. We also achieved the objective of further diversifying our shareholder base and increasing international ownership with 58% of the institutional tranche being allocated to international investors. Separately, our unique credit profile was also recognized by debt investors during the completion of our recent $6 billion bond issuance in July. The primary objective of going out with this issuance was to enhance liquidity across our bond yield curve after about 3 years of absence of new issuances. The strength of our balance sheet allowed us to avoid the volatility in the debt markets over these 3 years. With this transaction, we diversified and broadened our debt investor base, enhanced liquidity and reestablished a lower bond yield curve as we priced at negative new issuance premiums across all three tranches. This combination of equity and credit propositions is difficult to replicate. Aramco has consistently demonstrated its ability to deliver on shareholder value and business growth, which is anchored by four main pillars: our sustainable competitive advantage in traditional energy and new energies due to our scale, operatorship, geology, production cost and low upstream carbon emissions; our differentiated and value-focused growth opportunities in Upstream liquids and gas, in downstream crude to chemicals and in new energies, CCS, blue hydrogen and renewables; our demonstrated financial strength, which has allowed us to deliver on growth and, at the same time, increase distributions; and our strong position to maximize long-term value with our low-cost, low upstream carbon intensity barrels in a world that requires reliable, affordable and lower carbon energy. With that, Amin, Peter and I would be delighted to take your questions.

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

Thank you very much. So as we go to the Q&A. The first question comes from Iyad Ghulam of NCB Capital. (sic) [ SNB ] Capital. Go ahead.

I have two questions. One about the Phase II of Jafurah. Will that CapEx change your overall guidance for the CapEx in the medium term? And the second question is about the -- what is the long-term target regarding deleverage and gearing?

Yes, Iyad, I will answer the first question and refer the second question to Ziad. With regard to the second phase of Jafurah [indiscernible] anticipation for it to come on toward the end of '27. Per phase is planned for the second half of next year in 2025. And the full production from the Jafurah at 2 billion standard cubic feet per day will happen by the end of 2030. The importance of Jafurah stem from the amount of ethane that will be coming from it's 418 million of ethane standard cubic feet per day and about 630,000 barrels per day of gas, liquids and condensate. And it should not really have a huge impact. It's already considered in our planned capital program. And when we talk about Phase 2, we announced a $25 billion part of it for the Jafurah Phase 2 and part for third or expansion of the Master Gas System. So it is included in our forecast. It doesn't have any impact on our guidance. Ziad?

Yes. Iyad, on your second question, regarding gearing. No, we don't have a specific balance sheet gearing target per se. We are managing our gearing from several aspects. One is the strength of the balance sheet across the oil price cycles. And then two, an optimum capital structure that optimizes our weighted average cost of capital. And so when you look at it, our gearing as of end of June, is now at negative 0.5%. We're still in the -- end of the quarter still in a net cash position. The aim -- we've been deleveraging the company for a while and flattening our debt maturity schedule which in order to give us this flexibility. So do we have a specific target? No. We don't, for balance sheet gearing. As we guided in the past, we came back into the debt markets with the issuance of $6 billion of conventional bonds. We did this after about more than 3 years of absence in the debt market. The combination of we were deleveraging and we didn't need the funding at a time when the debt markets were highly volatile over the last 3.5 years. So we have the luxury of sitting out this high volatility period. Once the conditions of that markets became conducive to issuance, we came back with this very successful issuance. And the intent of it, as you can clearly see from our balance sheet is not use of funds per se, but to reestablish a lower bond yield curve, which we're able to do as we priced at negative new issue premiums across all three tranches that we issued 10 years, 30 years and 40-year maturities. It was also an opportunity to reengage the market and increase or further diversifying our investor.

Second question comes from Michele Della Vigna of Goldman Sachs.

I wanted to ask a couple of questions on your gas strategy. You continue to discover new low-cost resources in the country. it's absolutely key to guarantee that the country can continue to grow low carbon industrial activity, but I was wondering when do you think this could actually make Saudi an exporter of natural gas. And you've had many interesting initiatives where you start to produce the LNG, trading LNG, producing blue ammonia. What do you think is the best route for Saudi to export this gas longer term? Would it be more in the blue ammonia side or potentially as an LNG export?

Our strategy with regard to gas, we will be growing gas over the next couple of years by 2030 by more than 60%. And you are right, most of that growth is going in the Kingdom. There's a lot of industrial growth. That's why we are putting Master Gas System 3, not only to shift liquid burning to gas, but also to facilitate a lot of growth in the industries in the Kingdom. So we are -- have significant growth. We will be exported, but in hydrogen, blue hydrogen because we are working to export blue hydrogen and finalizing offtakes with different partners. LNG is in our radar screen. We are making big investments globally in LNG. And we have discussions within the Kingdom regarding LNG in the future depending on how much additional gas. Our mandates satisfy the Kingdom requirement. It's a growth market. It gives us a double-digit rate of return. It's a captive market and for that, we are keen to make sure that we develop our gas to meet the requirements and grow the industry and the utility sector and shift from liquid burning, that almost 1 million barrels, 50% of it will come from replacing it with gas and 50% will come from the additional renewables that we are also a part of it in the Kingdom. But for the time being, the focus is in blue hydrogen growth, utilizing that gas as a restock. And of course, to transfer that blue hydrogen, we need blue ammonia. And we have announced by 11 million tonnes of blue ammonia by 2030 in terms of investment and we are currently working towards achieving the targets.

Next question is from Henri Patricot of UBS.

Two questions from my side, please. The first one, on the CapEx guidance for the full year, I noted your comment here that there would be an update in the 3Q results, but any indication you can give us at this stage or where you're likely to end up? Looks like you're tracking very much towards the lower end of the guidance range based on first half CapEx? And then secondly, just coming back on the topic of LNG. You discussed the new offtake agreements in the quarter, potentially equity. Can you give us an indication of what you're trying to build here in terms of scale. Would you be looking to grow that business even further? Or is that really a quite sizable volumes that you've signed in your view?

With regard to capital guidance, it's $48 billion to $58 billion, including external investment. The first half capital investment is around $24.2 billion. We should be in a better shape to update you on the third quarter about narrowing that gap between the $48 million and $58 billion. For that time being, we are sticking to the same guidance that we have published earlier. With regard to LNG, yes, we do have big ambitions in terms of growing our LNG portfolio through increasing offtake agreement and increasing our trading capabilities. Of course, we are looking at either offtake agreements that we are signing some of it or equity injection and we continue to look for attractive opportunity globally. So we have closed in first quarter of 2024, a strategic partnership with MidOcean Energy, which is a small step in the right direction. In the second quarter of '24, we signed Heads of Agreement for a 20-year sale and purchase agreement for LNG offtake, one was simpler for 5 million tonnes an annum from the Port Arthur LNG Phase 2 expansion project and one with NextDecade for 1.2 million tonnes per annum from Train 4 at the Rio Grande LNG facility at the Port of Brownfield in Texas. So we do have other agreements and other opportunities that we are currently reviewing. And hopefully, we'll announce them in due course.

And the next question is from Kim Fustier of HSBC.

Firstly, you've made a number of acquisitions in retail. Could you talk about the broader expansion strategy in retail? And which markets are you targeting in particular? My second question is again on the balance sheet. If you'll allow me to go back to that theme. In previous calls, you've said that further deleveraging would be the last priority. So that doesn't seem to be fully consistent with your current distribution framework which allocates 30% to 50% of excess free cash to the balance sheet. So how should we think about the apparent tension between these two trends?

I'll take the first question. Ziad will take the second question. With regard to the retail and lube project we secured additional outage for Aramco refund project and further provide new market opportunity for Valvoline branded lubricants. Our retail strategy is to enter priority market that are short-term projects with a growing demand. Chile was where we had 100% of utility retail business there, about 41,000 barrels per day, 15% of Chile demand and approximately 300 stations, Gas & Oil Pakistan, also it is -- they have an existing sales of about 29,000. They are 8% of the Pakistan demand, but they have a lot of stations, about 1,200. Our aim is to be -- to place our -- we are growing our refined products as we are even in the liquid to chemicals, and we're looking at approximately placement of 500,000 by 2030 of refined products through this acquisition and these JVs that we are doing in different parts of the world depending on markets that are short looking for these projects. And commercial in terms of the opportunity. And of course, Valvoline is an important enabler for a lot of that, and we have closed that in the first quarter of '23. And it will allow us to expand our world-class based oil business to one among leading finished lubricant businesses.

Kim, on your second question, it's important to look at it in the context of the full priorities that we put -- fullest the priorities that we put on the cash. After sustaining CapEx, the priority is base dividends and then growth and then additional distributions and that this is the performance like dividends and deleveraging. The fact that the performance-linked dividend contributes 50% to 70% of net free cash flow is there in order to prioritize growth over additional distributions. We are still in our growth program, and we have the range of 50% to 70% which gives us flexibility in distributing additional distributions while not impacting our -- the funding of our growth program. We have been deleveraging for a few years. You've seen us go out to the debt markets with a $6 billion issuance. And so we're following the same priorities that we've communicated -- been communicating for the last few years. In general, our gearing has actually increased. We are still in a net cash position, but our gearing has increased. And then we went after it with a $6 billion issuance.

Our next question is from Syed Akhtar of Olayan Saudi Investment Company.

I have a question regarding your -- I have two questions. One is regarding your operating cost. Year-over-year, we have seen an increase in your selling and general expenses. And also there is an increase in purchasing cost. So what are the reasons behind it? And my -- can I ask my second question now or after you answer this question.

Syed go ahead with your two questions, and then we'll come back on that.

And the second question is regarding the purchase of fuel oil that the Saudi has purchased, I think, a couple of weeks back. What was the rationale behind it?

Purchase of fuel oil. Okay. Okay. Shall I go through with -- do you want to go through the first one. Okay. First one is on operating costs. Look, our costs are actually very steady at the moment, both on the Upstream and the Downstream. So there's nothing intrinsic that's changing those. There's a very small impact on -- because of a little bit of increase in freight rates. You'll have seen that one, but nothing particularly material. That's one element. But actually, they're relatively flat. You will see changes, particularly in the purchasing costs around on -- within a given quarter. But I would say, no, I think nothing that we would see on the trend on this one. Our costs remain very much at the low end and very stable.

With regard -- Syed, your question regarding fuel oil, nothing out of the ordinary. We are a net exporter of products. We always meet whatever required in the Kingdom in terms of different products, depending on seasonality and the increase of requirements in terms of the utility sector that we have, but we remain a net exporter of products from the Kingdom.

Yes, sir. But I just need to know what is -- I mean, what would be the use of the fuel oil when the Saudi has enough amount of fuel while, I do believe. So just wanted to understand this...

Fuel oil is used for liquid, mainly for liquid burning for the utility side. We use fuel oil especially higher in the summer because of liquid burning that is required, that's why the utility requirements.

Syed, you seem to be referring to -- you seem to also be referring to sufficient volumes. Fuel oil has different specifications. So sometimes, we actually end up -- even so the volume is sufficient, we end up exporting some fuel oil and importing different quality fuel oils for liquid burning.

And the next question comes from Guilherme Levy at Morgan Stanley.

I have two, please. The first one on refining, I wanted to pick your brain on refining margins into the end of this year. And also, if you could say a few words on the investment opportunities on refining from here. The company has been quite activist last year on using China. So I was just wondering if there is anything else worth highlighting on this front? And then the second one on Upstream investment. Earlier this year, the company temporarily suspended a number of jack-up rig contracts. So I was wondering if you could comment on the current amount of rigs operating for the company, if that's a sustainable level for us to think about over the coming months? Or if further adjustment is so necessary?

With regard to refining, in our view, weak refining margin seen during the second quarter is a short-term phenomenon. And refining margin over the coming decade should be fairly healthy. And we think the global refining capacity and distributed demand growth are matched reasonably well over the coming years. And most of the capacity expansions that we see is concentrated in Asia and the Middle East. Our investment refinery, we are making big investments in refinery, but these are highly integrated refineries with liquid to chemical, you're talking about 60% or higher liquid to chemical comparison. This is what we've done in “Rongsheng”, in HAPCO, [indiscernible] project. and the other opportunities that we are currently reviewing on the pipeline. So our -- this -- of course, China, as you know, is 40% of the chemical growth or chemical use is in China. So it's a huge market. The growth also in China comes from the need for a lot of carbon fiber chemical for solar panels and other products that are important for the transition. So there is a huge growth and shifting -- building refineries with liquid chemical converging capacity of 50%, 60%, 70% that we are seeing. And we are -- we'll continue to invest in these. We made announcement actioning too, there is a good number in the pipeline that we will be announcing in due course. So our interest in refinery will continue. I would like to mention also that the capacity, if you look at the U.S. utilization capacity currently is at 93% in the U.S. So there is -- it's reaching the limit in terms of capacity in terms of utilization and demand. So that's a significant. With regard to your questions about rigs, yes, as we dropped rigs as a result of going from 13 million barrel per day, I missed -- maximum the same capacity to 12 million. But there is growth in gas. We are adding a lot of gas. And if you look at our rigs by year-end, it's around 300 rigs going to be by year-end. So it's still -- we are showing good growth. If you look at it in 2019, we used to have -- in 2021, we had almost 220 rigs. And we are looking at year-end around 300 rigs, driven mainly by the growth that we are seeing in gas, either conventional or unconventional through the Jafurah. So there is no drop. There is growth in our rigs activities.

And the next question is from Sashank Lanka at Bank of America.

I have twrite-off questions. The first one is on your blue hydrogen growth prospects. We have noticed that you've increased your carbon capture target and are helping developing the ecosystem in Saudi. I think Mr. Nasser, a couple of years back, you said the market for blue hydrogen was still quite difficult. Just wanted to understand if there's any change in your view from that perspective in terms of contracts. That's my first question. And the second question is just on Jafurah, obviously, you start your -- you begin your Phase 1 next year. Any key learnings that you've had so far, given it's a project that's quite gigantic in scale and the first of its kind in Saudi. So any key learnings or challenges that you have encountered will be quite useful to know.

Our target to produce up to 11 million tonnes per annum of blue ammonia, equivalent to about 1.8 million tonnes per annum of blue hydrogen by 2030. We see large potential for hydrogen and global energy over the long term. But significant challenges remain to be overcome, which include, but are not limited to the high cost of producing and transporting hydrogen development of infrastructure and clear policies. Consumers naturally like clean hydrogen, but I'm not yet ready to be a sufficient premium without which large-scale hydrogen investment are unlikely to come. Our investment is intended to position ourselves for the future while also gaining experience of the business over larger investment by us will be guided by the manner in which actual hydrogen demand will unfold over the next couple of months, we are expecting certain bids to come through in Japan and followed by Korea. And this will dictate the way the market will unfold, but we certainly intend to be a major player in this important new energy area, and we are gearing for that in terms of making sure our things to provide for the blue hydrogen is available. Engineering is done. We are preparing the site. So we are gearing up and able to capture these opportunities when they materialize. With regard to your question about Jafurah, we are progressing very well. The results are speaking for itself. We are on track to put Phase 1 in the third quarter of next year. We have awarded 16 contracts for Phase 2, which is an indication that because of the progress and what we have learned in Phase 1, we are progressing, and we have already awarded the contract for Phase 2 were about more than $12 billion. Jafurah, as you know, will deliver 2 billion standard cubic feet per day by 2030. Phase 2 will be completed '27, but we are ramping production to reach the limits of the capacity that we are building by 2030. The good thing about Jafurah is amount, as I said, of ethane and the liquid that will be coming with it, which if you think about Saudi Arabia today, the amount of ethane, we have a huge chemical facility, SABIC and others, facilitated by some chemical projects and about 1 billion scf day of ethane. We are adding through Jafurah alone 418 million standard cubic feet of day of ethane almost more than 40% of what we have today. In addition, as I say, to the 650,000 barrels per day of liquid and condensate. And we will continue to drop the cost for what we are developing through Phase 1. We have learned a lot. We utilized a lot of technologies that is helping us to reduce the cost and making it more and more commercial to meet our aspiration and hopefully, you will see more of that coming through the Phase 2. And don't forget, in the unconventional gas, what's unique about it in the Kingdom compared to elsewhere, we are using seawater. So we're not using aquifer water. Water is heavily used in unconventional, the U.S. and elsewhere. But in the Kingdom, we are using seawater we are cognizant about resource of water and aquifer water. So we'll be using seawater, treated seawater for all of our operations in completion of gas.

And there's still an opportunity -- some opportunities to poll for a question. But in the meantime, we go through to Matt Lofting at JPMorgan.

Two, if I could, please. First, I just wanted to follow up on demand, the strength or not of oil and broader energy demand clearly moved into focus across financial markets through recent weeks and months. So given the scale of Aramco's reach across markets and the oil export angle into Asia and China. I wonder if you could expand on the nearer-term trends that you're seeing and in particular, whether there's any signs of weakness in physical markets that stand out either product-wise or regionally? And then secondly, just on the Q2 numbers, I mean, I noticed that the effective tax rate was lower in Q2 versus Q1 and prior quarters despite a sort of a lower downstream results. So I wondered if you could just help us understand the sort of the mix effect there.

Thank you, Matt. I will answer the first question. Ziad will take the second. With regard to demand, we remain positive about the outlook for the global oil demand despite concerns about the economic downturn. Global oil demand has been resilient. And in the first half of this year, demand reached about a record, I would say growth. And while Chinese economic growth has been moderating in the second quarter. This year, demand for crude oil and refined products remained strong. In addition, as I highlighted earlier, the U.S. refining sector has been running at almost maximum capacity with the utilization rate that has averaged at 93% over the past 3 months. The second half of this year, we anticipate further oil demand growth with some forecast reducting growth of 1.6 to 2 million barrels per day, badly driven by the global aviation sector and petrochemical demand. For the full year, the estimated global oil demand is expected to be around 104.7 million barrels per day. I should add that there seem to be continued upward also revision that we see of demand by various forecasters and agencies, which makes it very difficult to make informed investment decision as these revisions keep surprising to the upside. At the same time, we are seeing more plans to replenish strategic crude oil inventories, which we anticipate will contribute healthy oil demand over the next few months. And if you add to that, that the current inventory levels is at the low of the 5-year average currently.

Matt, on your second question on effective tax rates, the different tax brackets for different business units. So upstream gas is taxed at 20% and so downstream while upstream oil is taxed at 50%. So the effective tax rate is a blend of these. What you see specifically as a drop is mainly as a result of our gas pipelines, the transactions that you saw are actually taxed at 50% and are impacted by interest rates. So that is main driver behind what's happened in the second quarter. But generally, over the last couple of years, if you look at our effective tax rate, it has been quarter-to-quarter, it's been going as low as 45% and as high as 53%. So we're still within that range, nothing structural to speak of.

And with that, that's the last question that we have this morning from you guys. Thank you very much indeed. Can I take the opportunity to thank Amin and Ziad for their time and particularly to everybody joining the call with us today. As always, if there are any questions, any comments, any follow-up please contact us at Investor Relations, and we look forward to keeping in touch. Thank you very much indeed.