Q2 2026 Saudi Aramco Base Oil Co - Luberef Earnings Call

August 3, 2026

Saleh Alghamdi: السلام عليكم ورحمة الله وبركاته. نرحب بكم جميعًا في هذا البث الصوتي لمناقشة نتائج النصف الأول لعام 2026 لشركة Luberef. ونود أن ننوّه إلى أن هذا البث سيتم تسجيله وتوفير نسخة منه مع ترجمة باللغة العربية، وذلك لضمان التواصل الفعال مع جميع المستثمرين والمستمعين. Hello everyone. Good afternoon. My name is Saleh Alghamdi. I'm the Investor Relations Manager at Luberef. It is my pleasure to welcome you in today's audio webcast where we will be discussing our performance for H1 2026. I'm also pleased to be joined virtually by our President and Chief Executive Officer, Mr. Samer Al-Hokail, and here with me in Jeddah, our Chief Financial Officer, Mr. Saud Kamakhi. Our session will begin with a presentation highlighting Luberef's performance for H1 2026, followed by a Q&A session. Please note this webcast is being recorded for future reference.

Speaker #1: السلام عليكم ورحمة الله وبركاته. نرحب بكم جميعًا في هذا البث الصوتي لمناقشة نتائج النصف الأول لعام 2026 لشركة لوبريف. ونود أن ننوه إلى أن هذا البث سيتم تسجيله وتوفير نسخة منه مع ترجمة باللغة العربية، وذلك لضمان التواصل الفعال مع جميع المستثمرين والمستمعين.

Speaker #1: Hello everyone, good afternoon. My name is صالح الغامدي. I'm the Investor Relations Manager at Luberef. It is my pleasure to welcome you to today's audio webcast.

Speaker #1: We will be discussing our performance for the first half of 2026. I am also pleased to be joined virtually by our President and Chief Executive Officer, Mr. سامر الحقيل, and here with me in Jeddah, our Chief Financial Officer, Mr. سعود كماخي.

Speaker #1: Our session will begin with a presentation highlighting Luberef's performance for H1 2026, followed by a Q&A session. Please note, this webcast is being recorded for future reference.

Saleh Alghamdi: [Foreign language] Hello everyone. Good afternoon. My name is Saleh Alghamdi. I'm the Investor Relations Manager at Luberef. It is my pleasure to welcome you in today's audio webcast where we will be discussing our performance for H1 2026. I'm also pleased to be joined virtually by our President and Chief Executive Officer, Mr. Samer Al-Hokail, and here with me in Jeddah, our Chief Financial Officer, Mr. Saud Kamakhi. Our session will begin with a presentation highlighting Luberef's performance for H1 2026, followed by a Q&A session. Please note this webcast is being recorded for future reference.

Speaker #1: Before we dive into the presentation, I would like to draw your attention to our cautionary statement. During today's presentation, we may make forward-looking statements that refer to estimates, plans, and expectations.

Saleh Alghamdi: Before we dive into the presentation, I would like to draw your attention to our cautionary statements. During today's presentation, we may make forward-looking statements that refer to estimates, plans, and expectations. Actual results and outcomes may differ materially due to factors stated in the slide. With that out of the way, I will now hand over the call to our President and CEO, Mr. Samer Al-Hokail.

Speaker #1: Actual results and outcomes may differ materially due to factors stated in this slide. With that out of the way, I will now hand over the call to our President and CEO, Mr. Samer Al-Hogail.

Samer Al-Hokail: Hey everyone. السلام عليكم جميعًا. Welcome to Luberef's second earnings call for 2026, thank you for joining. We value your participation today and look forward to sharing an overview of our business highlights, strategic progress, and financial results. This year marks a significant milestone for Luberef as we celebrate our 50th anniversary. Over the past 5 decades, the company has built a strong track record of operational excellence, safe and reliable operations, and disciplined execution. As we celebrate this milestone, we remain focused on building on that legacy, keeping the world in motion, and positioning Luberef for its next phase of growth. Building on this strong foundation, Q2 recorded another notable milestone for Luberef as we delivered one of the highest net income and crack margins in the company's history. This achievement reflects strong operational performance and our ability to capitalize on favorable market conditions.

Speaker #2: Hey everyone, السلام عليكم جميعًا. Welcome to Luberef's second earnings call for Q2 2026, and thank you for joining. We value your participation today and look forward to sharing an overview of our business highlights, strategic progress, and financial results.

Speaker #2: This year marks a significant milestone for Luberef as we celebrate our 50th anniversary. Over the past five decades, the company has built a strong track record of operational excellence, safe and reliable operations, and disciplined execution.

Speaker #2: As we celebrate this milestone, we remain focused on building on that legacy—keeping the world in motion and positioning Luberef for its next phase of growth.

Speaker #2: Building on this strong foundation, the second quarter recorded another notable milestone for Luberef, as we delivered one of the highest net income and crack margins in the company's history.

Speaker #2: This achievement reflects strong operational performance and our ability to capitalize on favorable market conditions. Safety remains our highest priority throughout the quarter. We sustained a total recordable incident rate of zero and surpassed 44.4 million man-hours without a lost time injury.

Samer Al-Hokail: Safety remains our highest priority throughout the quarter. We sustained a total recordable incident rate of 0 and surpassed 44.4 million man-hours without a lost time injury, ولله الحمد, while maintaining mechanical availability of 100%. These results underscore the strength of our safety-first culture and disciplined execution of our operating model. The company advanced its localization effort by signing an agreement with Apar Industries Middle East Limited to supply base oil for its manufacturing operations within the LubeHub Value Park in Yanbu. The agreement represents an important step in enabling Apar manufacturing transformer oils and a broad portfolio of specialty oils within the kingdom. Reinforcing the LubeHub's position as a catalyst of downstream industrial development while contributing to local value creation and strengthening the kingdom's industrial ecosystem.

Speaker #2: Wa lillah al-hamd. While maintaining mechanical availability of 100%. These results underscore the strength of our safety-first culture and disciplined execution of our operating models. The company advanced its localization effort by signing an agreement with APAR Industries Middle East Limited to supply base oil for its manufacturing operations within the Loop Hub Value Park in Yanbu.

Speaker #2: The agreement represents an important step in enabling ABAR to manufacture transformer oils and a broad portfolio of specialty oils within the Kingdom, reinforcing the Loop Hub's position as a catalyst for downstream industrial development, while contributing to local value creation and strengthening the Kingdom's industrial ecosystem.

Speaker #2: Building on that commitment to enhancing local content in the Kingdom, we launched the Assassana program, which is the name of the program. It aims to promote local sourcing, strengthen the supply ecosystem, and develop national capabilities across our operations.

Samer Al-Hokail: Building on that commitment to enhancing local content in the kingdom, we launched Athasana program, which is the name of the program, which aims to promote local sourcing, strengthening the supply ecosystem, and develop national capabilities across our operations. The program embedded local content as a strategic pillar across Luberef's value chain, advancing Saudi localization agenda while fostering long-term partnerships within the kingdom suppliers, reinforcing our contribution to the kingdom's Vision 2030. Furthermore, we signed a Memorandum of Understanding to explore carbon-related initiatives supporting carbon market development and emissions reduction in line with the sustainability ambition of Saudi Green Initiative. We continued to optimize the value chain of export through ongoing logistic initiatives. These efforts enhance supply chain efficiencies, strengthened our competitive cost position, and contribute to improved profitability.

Speaker #2: The program embedded local content as a strategic pillar across Luberef's value chain, advancing Saudi localization agenda while fostering long-term partnerships within the Kingdom's suppliers.

Speaker #2: Reinforcing our contribution to the Kingdom's Vision 2030. Furthermore, we signed a memorandum of understanding to explore carbon-related initiatives, supporting carbon market development and emissions reduction, in line with the sustainability ambition of the Saudi Green Initiative.

Speaker #2: We continued to optimize the value chain of export through ongoing logistics initiatives. These efforts enhanced supply chain efficiencies, strengthened our competitive cost position, and contributed to improved profitability.

Speaker #2: As a result, our Board of Directors has approved an interim dividend of 4 Saudi riyals per share for the first half of 2026, in line with Luberef's dividend policy.

Samer Al-Hokail: As a result, our board of directors has approved an interim dividend of SAR 4 per share for H1 2026, in line with Luberef's dividend policy, reflecting the company's strong financial performance and commitment to delivering shareholder returns. Our commitment to transparency and corporate excellence was recognized during the quarter as Luberef received the Investor Relations Program of the Year 2025 Mid-Cap Awards for the second consecutive year. This achievement is a testament of our continued focus on maintaining the highest standards of investor relations and fostering open and consistent engagement with the investor community. We remain confident in Luberef's strategy and our ability to execute it while fortifying the company's long-term competitive position. Growth II reached 73% overall completion. Building on this progress, procurement activities accelerated during the quarter to sustain the project execution phase.

Speaker #2: Reflecting the company's strong financial performance and commitment to delivering shareholder returns, our dedication to transparency and corporate excellence was recognized during the quarter, as Luberef received the Investor Relation Program of the Year, 2025 Midcap Awards, for the second consecutive year.

Speaker #2: This achievement is a testament to our continued focus on maintaining the highest standards of investor relations and fostering open and consistent engagement with the investor community.

Speaker #2: We remain confident in Luberef's strategy and our ability to execute it while fortifying the company's long-term competitive position. Growth 2 reached 73% overall completion. Building on this progress, procurement activities accelerated during the quarter to sustain the project execution phase.

Speaker #2: The current favorable pricing environment and feedstock supplier presented an opportunity to create additional value accordingly. We rescheduled the planned shutdown to October, enabling us to extend production during a period of strong base oil pricing and market dynamics.

Samer Al-Hokail: The current favorable pricing environment and feedstock supplier presented an opportunity to create additional value. Accordingly, we rescheduled the plant shutdown to October, enabling us to extend production during a period of strong base oil pricing and market dynamics. During Q4, both shutdown and ongoing activities are expected to increase the project's progress by 10%, driving the total percentage to 83%. Construction scope related to vacuum distillation unit will be subject to completion in H1 2027, followed by the project commissioning. Our base oil crack margins for H1 2026 reached SAR 2,732 per metric ton, the highest level in Luberef history. This reflects an exceptionally strong market environment, with crack margins increasing by 49% compared with the same period last year and standing 52% above the 10-year historical average.

Speaker #2: During the fourth quarter, both shutdown and ongoing activities are expected to increase project progress by 10%, driving the total percentage to 83% of the construction scope.

Speaker #2: Related to the vacuum distillation unit, it will be subject to completion in the first half of 2027, followed by the project commissioning. Our base oil crack margins for the first half of 2026 reached SAR 2,732 per metric ton, the highest level in Luberef history.

Speaker #2: This reflects an exceptionally strong market environment, with crack margins increasing by 49% compared to the same period last year and standing 52% above the 10-year historical average.

Speaker #2: Supported by strong performance and disciplined execution, these healthy market conditions enabled us to deliver record financial results during the period. With that, I will now hand it over to our CFO, who will walk us through the financial performance, and I look forward to the Q&A session.

Samer Al-Hokail: Supported by strong performance and disciplined execution, these healthy market conditions enable us to deliver record financial results during the period. With that, I will now hand it over to our CFO, who will be walking us through the financial performance, and I'm looking forward for the Q&A session.

Speaker #3: Thank you, Mr. Samer. I extend a warm welcome to you all, and I'm delighted to guide you through our H1 2026 financial results and provide insights into the guidance for the remaining financial year.

Saud Kamakhi: Thank you, Mr. Samir. I extend a warm welcome to you all, and I am delighted to guide you through our H1 2026 financial results and provide insights into the guidance for remaining financial year. During the H1 2026, the company delivered an exceptional financial performance, supported by a favorable market environment and strong pricing dynamics. This strong performance was underpinned by a record-high base oil crack margin of SAR 2,732 per metric ton, representing an increase of 49% compared with the same period last year. The significant expansion in margins provided a solid foundation for the company's earning growth during the period. As a result, EBITDA reached to SAR 1,184 million, representing an increase of 94% year-over-year, while net income amounted to SAR 992 million, with an increase of 113% compared to the same period last year.

Speaker #3: During the first half of 2026, the company delivered an exceptional financial performance, supported by a favorable market environment and strong pricing dynamics. This strong performance was underpinned by a record-high base oil crack margin of SAR 2,732 per metric ton, representing an increase of 49% compared with the same period last year.

Speaker #3: The significant expansion in margins provided a solid foundation for the company's earnings growth during the period. As a result, EBITDA reached SAR 1.18 billion, representing an increase of 94% year-over-year, while net income amounted to SAR 992 million, with an increase of 113% compared to the same period last year.

Speaker #3: These results demonstrate our ability to capture value in different market conditions and reflect the resilience and strength of our operating model. Our capital program continues to focus on supporting the company's strategic growth priorities, with total spending of 302 million Saudi riyal, of which 119 million was allocated to the Growth 2 project, while turnaround commitments contributed to 133 million Saudi riyal.

Saud Kamakhi: These results demonstrate our ability to capture value, different market conditions, and reflect the resilience and strength of our operating model. Our capital program continues to focus on supporting the company's strategic growth priorities with total spending of SAR 302 million, of which SAR 119 million was allocated to the Growth II project while turnaround commitments contributed to SAR 133 million. Despite this continued investment, the company generated strong cash flows during the period. Supported by favorable working capital movement, free cash flow increased by 346 compared to the same period last year, further reinforcing the company's strong financial position and financial flexibility. Supported by this strong cash generation, the company closed the H1 with a robust financial position, maintaining a negative gearing ratio of 20% while delivering a 33% return.

Speaker #3: Despite these continued investments, the company generated strong cash flows during the period, supported by favorable working capital movement. Free cash flow increased by 346% compared with the same period last year, further reinforcing the company's strong financial position and financial flexibility.

Speaker #3: Supported by this strong cash generation, the company closed the first half with a robust financial position, maintaining a negative gearing ratio of 20%, while delivering a 33% re-rating.

Speaker #3: Together, these metrics reflect the efficient utilization of our asset base and disciplined capital structure, and the resilient balance sheet that provide a solid foundation for future growth.

Saud Kamakhi: Together, these metrics reflect the efficient utilization of our asset base, a disciplined capital structure, and a resilient balance sheet that provide a solid foundation for future growth. Net income for the H1 2026 reached to SAR 992 million compared to SAR 467 million for the same period last year, representing the 113% year-on-year increase and the highest value in the company history for six-month period. The strong performance was primarily driven by higher base oil crack margin as Luberef successfully capitalized on market conditions through effective operational management and strong safety and reliability performance, enabling the company to benefit from the higher market prices and strong crack margins. Turning to our cash position.

Speaker #3: Net income for the first half of 2026 reached SAR 992 million, compared to SAR 467 million for the same period last year, representing a 113% year-on-year increase and the highest value in the company's history for a six-month period.

Speaker #3: The strong performance was primarily driven by a higher base oil crack margin, as Luberef successfully capitalized on market conditions through effective operational management and strong safety and reliability performance, enabling the company to benefit from higher market prices and strong crack margins.

Speaker #3: Turning to our cash position, we began the year with a cash balance of approximately SAR 1.373 billion and generated SAR 1 billion in free cash flow during the first half.

Saud Kamakhi: We began the year with a cash balance of approximately SAR 1,373 million and generated SAR 1 billion in free cash flow during the H1, reflecting the strength of our operating performance and disciplined working capital management. During the period, we invested SAR 302 million in capital expenditures to support our strategic growth initiatives while returning SAR 589 million to shareholders through dividends for the H2 2025. As a result, we closed the H1 2026 with a cash balance of SAR 1,750 million, maintaining a strong liquidity position and the financial flexibility to support both our growth strategy and shareholder returns. As we move forward, base oil production for the year is still projected at 1.15 million metric tons of base oil.

Speaker #3: Reflecting the strength of our operating performance and disciplined working capital management. During the period, we invested SAR 302 million in capital expenditures to support our strategic growth initiatives, while returning SAR 589 million to shareholders through dividends for the second half of 2025.

Speaker #3: As a result, we closed the first half of 2026 with a cash balance of SAR 1,750 million, maintaining a strong liquidity position and financial flexibility to support both our growth strategy and shareholder returns.

Speaker #3: As we move forward, base oil production for the year is still projected at 1.15 million metric tons of base oil. In line with the recent developments in Bab al-Mandab, export sales have been diverted to alternative routes, and the Growth 2 shutdown is rescheduled to October in order to capture the current attractive business environment.

Saud Kamakhi: In line with the recent development in Bab el-Mandeb, export sales have been diverted to alternative routes, and Growth II shutdown is rescheduled to October in order to capture the current attractive business environments, while the range of CapEx guidance remains the same. Reflecting our strong financial performance and healthy cash generation, our board of director has approved an interim dividend of SAR 4 per share for the H1 2026, according to the Luberef's dividends policy. Other guidance factors stated in the slide remain valid, including premiums and prices indices. This quarter demonstrated the resilience of our business and the strength of our financial and operational performance. Despite the evolving regional environment, we remain confident in our ability to adapt, execute our strategy with discipline, and capitalize on opportunities.

Speaker #3: While the range of CapEx guidance remains the same, reflecting our strong financial performance and healthy cash generation, our board of directors has approved an interim dividend of 4 riyals per share for the first half of 2026, according to Luberef's dividend policy.

Speaker #3: Other guidance factors stated in the slide remain valid, including premiums and price indices. This quarter demonstrates the resilience of our business and the strength of our financial and operational performance.

Speaker #3: Despite the evolving regional environment, we remain confident in our ability to adapt, execute our strategy with discipline, and capitalize on opportunities. We are well positioned to sustain strong profitability, maintain a healthy balance sheet, and continue investing in our long-term growth priorities.

Saud Kamakhi: We are well-positioned to sustain strong profitability, maintain a healthy balance sheet, and continue investing in our long-term growth priorities. With that, we move to the Q&A session that will be moderated by Saleh.

Speaker #3: With that, we move to the Q&A session, which will be moderated by Saleh.

Speaker #2: Thank you, Siroj. We will now begin our Q&A session. As usual, kindly start by introducing yourself and your place of work, followed by your question, whether it is verbal or typed.

Saleh Alghamdi: Thank you, Saud. We will now begin our Q&A session. As usual, kindly start by introducing yourself and your place of work, followed by the question, whether it is verbally or by type. I see Mr. Iyad Ghulam from SNB Capital. Could you please step forward?

Speaker #2: I see Mr. Riad Ghulam from SMB Capital. Could you please step forward?

Speaker #4: Assalamu alaikum. First of all, congratulations on the very strong results. I have two questions. The first one is regarding the current situation of Bab al-Mandab and how things are.

Iyad Ghulam: Salam Alaikum.

Saleh Alghamdi: Welcome.

Iyad Ghulam: First of all, congratulations on the very strong results. I have two questions. The first one is regarding the current situation of Bab el-Mandeb and how things are. I know things are still evolving, and it is not very clear. You mentioned, Saud, that there is a rerouting to other destinations. I just want to understand how is the picture or the ability to export volumes. The second question is about the byproducts crack margins. Last quarter, it was really strong, apparently this quarter it was a drag on the earnings. How should we think about it, and what was the reason behind the weak numbers in Q2?

Speaker #4: I know things are still evolving and it's not very clear. And you mentioned, Siroj, that there is a rerouting to other destinations. I just want to understand: what is the picture of, or the ability to, export volumes?

Speaker #4: The second question is about the byproduct crack margins. Last quarter, it was really strong, but apparently this quarter, it was a drag on the earnings.

Speaker #4: So, how should we think about it, and what was the reason behind the weak numbers in Q2?

Speaker #2: Thank you. Yeah, maybe, if I may, Saleh, let me take this. On Bab al-Mandab—thanks for the question—yeah, on Bab al-Mandab, it still remains very continuous in terms of heightened and regional tensions, but we do have several alternatives.

Saud Kamakhi: Maybe if I may, Saleh, take this on Bab el-Mandeb. Thanks for the question, Iyad. On Bab el-Mandeb, it still remains very continuous in terms of heightened and regional tensions. We do have several alternatives. It is part of our enterprise risk management that we review on a monthly basis

Speaker #2: It is part of our enterprise risk management that we review on a monthly basis. The alternatives are different routes, some of which are the Cape of Good Hope, which are in action as we speak.

Samer Al-Hokail: The alternatives are different routes, some of which are the Cape of Good Hope, which are in action as we speak. We would actually truck even more locally and sell locally, and this should offset it. Nevertheless, ships are moving through the Bab el-Mandeb. Our ships are being nominated and accepted as well in the recent few days. It is fluid and it evolves as we speak. On the second question, I think maybe Saud can handle this, please.

Speaker #2: We would actually truck even more locally and sell locally, and this should offset it. Now, nevertheless, ships are moving through the Bab al-Mandab. Our ships are being nominated and accepted as well.

Speaker #2: And the recent few days, but it is fluid, and it evolves as we speak. On the second question, I think maybe Siroj can handle this, please.

Saud Kamakhi: Thank you, Iyad, first of all, for your attendance. Yes, I think from byproduct perspective, in Q2 it was lower. As you know that those are related also to the fuel prices and the drop also that happened during our feedstock and crude, which our byproducts such as diesel also follow the same trend. Yes, we enjoyed a high margin during Q1. Q2, maybe we came back to the regular situation in normal years where we have lower margin in the byproducts. That will have one impact on our margin, but not that much impact compared any for our final results.

Speaker #3: Saleh, thank you. First of all, thank you for your attendance. Yes, I think from my product perspective, in the second quarter, it was lower. As you know, that is also related to the fuel prices and the drop that happened during our feedstock and crude, which our byproducts such as diesel also followed the same trend.

Speaker #3: So, therefore, yes, we enjoyed a high margin during Q1, but in Q2, maybe we came back to the regular situation in normal years, where we have lower margin in the byproducts.

Speaker #3: So that does have an impact on our margin, but not as much impact compared to other final results.

Speaker #2: If I could just jump in here, Siroj—you mentioned, how do you want to think about it. I think the way is, yeah, the effect of crude oil prices and fuel oil prices on byproducts is much quicker and faster—in, let's say, a more linear relationship in the market—than on your base oils.

Samer Al-Hokail: If I just jump in here, Saud. You mentioned how do you want to think about it. I think the way, yes, Iyad, is the effect of crude oil prices and fuel oil prices to byproducts is much quicker and faster, and it's a linear relationship, in a way, in the market than your base oils. The base oils tend to lag. If those prices are reduced, then the byproducts are swinging as well.

Speaker #2: The base oil is 10 to lag. And if those prices are reduced, then the byproducts are swinging as well.

Speaker #4: Excellent. Thank you so much. I appreciate it.

Iyad Ghulam: Exactly. Thank you so much. Appreciate it.

Speaker #2: Thank you, Riad. I see next on the table Mr. Ricardo from Morgan Stanley. Could you please step forward?

Saleh Alghamdi: Thank you, Iyad. I see next on the table Mr. Ricardo from Morgan Stanley. Could you please step forward?

Speaker #4: Hello, good afternoon. Can you hear me?

[Analyst] (Morgan Stanley): Hello. Good afternoon. Can you hear me?

Ricardo Nasser de Rezende Filho: Hello. Good afternoon. Can you hear me?

Speaker #2: Yes, you are audible loud and clear, Ricardo.

Saleh Alghamdi: Yes, you're audible loud and clear, Ricardo.

Speaker #4: Perfect. Thank you very much. A couple of questions, if I may—more on the marketing side of things. When you mentioned some of the logistics issues that you're facing now, could we expect any changes in the end markets that you're selling to—for example, a change in the export destinations? And also, could there be any impact on the usual mix between domestic and exports?

[Analyst] (Morgan Stanley): Perfect. Thank you very much. A couple questions, if I may, more on the marketing side of things. When you mention some of the logistics issues that are facing it now, could we expect any changes on the end markets that you're selling to? A change on the exports, on the destinations, and also on the usual mix between domestic and exports. The second one, just given the current base oil prices, when we look at the normal premium that you can sell your products at the domestic market, have you seen any changes on Q2 and in July? Meaning because of prices being much higher than the usual prices, are you charging a lower premium compared to that SAR 250 through the cycle? Thank you.

Ricardo Nasser de Rezende Filho: Perfect. Thank you very much. A couple questions, if I may, more on the marketing side of things. When you mention some of the logistics issues that are facing it now, could we expect any changes on the end markets that you're selling to? A change on the exports, on the destinations, and also on the usual mix between domestic and exports. The second one, just given the current base oil prices, when we look at the normal premium that you can sell your products at the domestic market, have you seen any changes on Q2 and in July? Meaning because of prices being much higher than the usual prices, are you charging a lower premium compared to that SAR 250 through the cycle? Thank you.

Speaker #4: And then the second one, just given the current base oil prices, when we look at the normal premium that you can sell your products at in the domestic market, have you seen any changes in the second quarter and in July? Meaning, because of prices being much higher than the usual prices, are you charging a lower premium compared to that $150 through the cycle?

Speaker #4: Thank you.

Speaker #2: So I will repeat the questions. The first one is related to any change in the destinations we are selling to—basically, the split between domestic destinations and exports.

Saleh Alghamdi: I will repeat the questions. The first one is related to any change in the destinations we are selling to. Basically, the split between the destination and the export.

[Analyst] (Morgan Stanley): Yes.

Ricardo Nasser de Rezende Filho: Yes.

Speaker #2: Yeah, the second question is related to the premium that we apply locally. Mr. President?

Saleh Alghamdi: The second question is related to the premium that we apply locally.

[Analyst] (Morgan Stanley): Yes, exactly.

Ricardo Nasser de Rezende Filho: Yes, exactly.

Saleh Alghamdi: Mr. President?

Speaker #5: Saleh: Okay. Ricardo, it's always good to have you, and you always have good questions as well. On the split, we try to maximize local, given what's happening. But as you are aware, local just has a cap on demand.

Samer Al-Hokail: Okay. Ricardo, good to have you always, and good questions as well. On the split, we try to maximize local given what's happening. As you are aware, local has just a cap of demand. As long as we can create demand, then that's there. We kind of fill that bucket as much as we can, then we try to export. Yes, we are always in search for new destinations, far destinations as well, be it Europe or even the Americas. Our usual suspect destinations are the Far East and the AG. Some of which are going through the Cape of Good Hope, which requires maybe a working capital kind of arrangement with the customer. Some of which have offered to pick up, actually, the extra freight on that, and some we can negotiate in between. This is the nature of the industry.

Speaker #5: As long as we can create demand, then that's there. So we kind of fill that bucket as much as we can, then we try to export.

Speaker #5: Yes, we are always in search of new destinations, distant destinations as well—be it Europe or even the Americas. But our usual suspect destinations are the Far East and the Aegean.

Speaker #5: Some of which are going through the Cape of Good Hope, which requires maybe a working capital kind of arrangement with the customer. Some of which have offered to actually pick up the extra freight on that.

Speaker #5: And some we can negotiate in between. And this is the nature of the industry. On the premiums, maybe I'll have this with the CFO. And let me know if I answered the question fully, Ricardo.

Samer Al-Hokail: On the premiums, maybe I'll have this with the CFO. Let me know if I answered the question fully, Ricardo.

Saud Kamakhi: Thank you, Abdessalam. For the second question, Ricardo, what mentioned by our President and CEO right now is keeping that mix as a continuous target for Luberef. We going to maximize local. With that, we are also within the range of our premium that we always share. We did not see any major changes within that premium, despite the prices may be higher during that quarter comparing to the previous one. The premium is within that range where we are trying to also ensure that our product availability for our local customers is there. We are keeping and maintaining also the mix of 70/30% during the period.

Speaker #3: Saleh, thanks for that. This is for the second question. Ricardo, what's mentioned by our president and CEO right now is keeping that mix as a continuous target for Luberef.

Speaker #3: We're going to maximize local. And with that, we are also within the range of our premium that we always share. We did not see any major changes within that premium.

Speaker #3: Despite the prices maybe being higher during that quarter compared to the previous one, the premium is within that range, where we're also trying to ensure that our product availability for our local customers is there.

Speaker #3: And we are keeping and maintaining also the mix of 70/30 percent during the period.

[Analyst] (Morgan Stanley): That was super clear. Thank you. If I may just follow up on one of the points about the Cape of Good Hope. What would be the incremental cost per ton on shipping via there versus just a normal Red Sea route?

Ricardo Nasser de Rezende Filho: That was super clear. Thank you. If I may just follow up on one of the points about the Cape of Good Hope. What would be the incremental cost per ton on shipping via there versus just a normal Red Sea route?

Speaker #4: That was super clear, thank you. If I may, I'd just like to follow up on one of the points about the Cape of Good Hope. What have been the incremental costs per ton on shipping via there versus just the normal Red Sea route?

Speaker #3: So you want?

Saud Kamakhi: Saud, do you want?

Speaker #2: No, I don't have it off the top of my head, but maybe your CFO does. But definitely, it is higher, given what's happening now. I'm just looking at even freight rates and crude oil.

Samer Al-Hokail: No, I don't have it on top of my head, but maybe CFO. Definitely it is higher given what's happening now. I'm just looking at even freight rates and crude oil. It just went tremendously high, not only double, but even more than that. In our case, I'll have the CFO to answer this.

Speaker #2: It just went tremendously high—not only double, but even more than that. But in our case, I'll have a CFO too.

Speaker #3: Yeah, as mentioned before, there is an extra charge on that. We are looking at rates that maybe start at 100-plus on the freight rate per metric ton.

Saud Kamakhi: Yeah, as mentioned before, that there is an extra charge on that. We are looking at rates that maybe started 100 plus on the freight rate per metric ton. It depends on its destination and a lot of other logistic factors. However, that is being now booked out with the customers, and we will see how that will impact, maybe a delay in reaching to the customer, 30 days or so. At the end, we will try to ensure, activate all our mitigation process that we already have in place to reach our customer anywhere inshallah.

Speaker #3: It depends on its destination and other logistic factors. However, that is now being looked at with the customers, and we will see how that will impact—maybe a delay in reaching the customer, 30 days or so.

Speaker #3: But at the end, we will try to ensure that we activate all our mitigation processes that we already have in place to reach our customers anywhere, inshallah.

Speaker #4: Okay. Thank you very much.

[Analyst] (Morgan Stanley): Okay. Thank you very much.

Ricardo Nasser de Rezende Filho: Okay. Thank you very much.

Speaker #2: You're welcome, Ricardo. Good to always have you. Next, we have Mr. Mohamed El Granis—apologies if I mispronounced the name. Mr. Mohamed, could you please step forward?

Saleh Alghamdi: You are welcome, Ricardo, and good always to have you. Next, we have Mr. Mohammed Al-Ghanim. Apologies if I mispronounced the name. Mr. Mohammed, could you please step forward?

Speaker #6: Assalamualaikum warahmatullahi wabarakatuh.

Mohammed Al-Ghanim: Assalamualaikum warahmatullahi wabarakatuh. No, on the contrary, you pronounced it very correctly. Thanks a lot.

Saleh Alghamdi: Allah hijik alaikum.

Mohammed Al-Ghanim: Thanks, Mr. Sam and Mr. Saud, for the call and for Al Rajhi Capital, and congratulations for the great results. If you could please shed some light on the Jazan project, Al-Thatha. I know it's still very initial phase, but I would really appreciate if you can just give us an update on that. Also, on second question that I have on dividend distribution. Mash'Allah, profitability has been very strong and historically, profitability of the company, of Luberef, has been strong. As you showed, gearing is -20% right now. You have a lot of cash. You have, mash'Allah, very strong, I would say, excess capital giving the asset-light business model that you have compared to other normal or prevalent refineries. In terms of this, it'll give you some room to increase really payout and increase dividends somehow to make capital more efficient and also increase return.

Speaker #2: Thanks, Mr. Sami, Mr. Saud, for the call and for Rajha Capital, and congratulations on the great results. If you could please shed some light on the Jazan projects—I know it's still a very initial phase—but I would really appreciate it if you could just give us an update on that.

Speaker #2: Also, on the second question that I have on dividend distribution, mashallah, profitability has been very strong, and historically, profitability of the company—of Luberef—has been strong.

Speaker #2: And as you showed, gearing is minus 20 percent right now. You have a lot of cash; you have, mashallah, very strong—or I would say excess—capital, given the asset-light business model that you have compared to other normal or traditional refineries.

Speaker #2: So, doesn't this give you some room to really increase payout and increase dividends somehow, to make capital more efficient and also increase retail?

Speaker #2: Then, as you know, as—mashallah—as you grow on earnings, you will have, a lot of—you will have accumulated capital, which could push returns lower.

Mohammed Al-Ghanim: As you know, of course, as mash'Allah you grow on earnings, you will have a lot of accumulated capital which could push returns lower. At the end of the day, mash'Allah, banks are open. I'm sure they would be really happy to finance Luberef growth plans at very decent spread.

Speaker #2: At the end of the day, mashallah, I'm sure they would be really happy to finance Luberef's growth plans at a very decent spread. Thank you, Mohamed.

Saleh Alghamdi: Thank you, Mohammed. I'm just going to make sure I repeat the questions for the sake of our audience. The first question was related to the status of project Jazan, which is to produce Group III+. I believe this would best be answered by the President and CEO. The second question is related to the why or what dictates the range of payouts in relation with dividend policy. Mr. President, would you like to step forward?

Speaker #2: I'm just going to make sure I repeat the questions for the sake of our audience. So, the first question is related to the status of Project Jazan, which is to produce Group III Plus.

Speaker #2: I believe this will be answered by the President. It would be best answered by the President and CEO. The second question is related to what dictates the range of payout in relation to the dividend policy.

Speaker #2: Mr. President, would you like to step forward?

Speaker #5: Yeah, sure. Thank you, Saleh. Thank you, Mohamed, for the question and the convincing argument you're putting through on the dividends, which will hopefully be addressed through this Q&A.

Samer Al-Hokail: Yes, sure. Thank you, Saleh. Thank you, Mohammed, for the question and the convincing argument you're putting through on the dividends, which will be hopefully entertained through this Q&A. We have a MoU signed with Aramco, to study the facility of and producing Group III+ in Jazan. The unconverted oil that is the feed going for that facility, and it will upgrade a low-value product to a very high-value product. This whole thing is expected to have an FID in H1 2027. Not sometime, but definitely H1 2027. Currently, we are in the pre-FEED, which is the pre-engineering capability. We're looking at not only the economics, we're looking at utilities, we've done the feasibility of locations.

Speaker #5: We have an MOU signed with Ramco to study the facility for producing Group III+ in Jazan. The unconverted oil is the feed going to that facility.

Speaker #5: And it will upgrade a low-value product to a very high-value product. This whole thing is expected to have an FID sometime in 2027.

Speaker #5: First half in 2027, not sometime, but definitely the first half of 2027. Currently, we are in the pre-FEED, which is the pre-engineering capability. We're looking at not only the economics, we're looking at utilities, we're looking at—we've done the feasibility of locations.

Speaker #5: But then, the nature of these projects, which are quite intensive in engineering and front-ended, is that it takes six months for that to be done—then maybe another year.

Samer Al-Hokail: The nature of these projects, which are quite intensive in engineering, front-ended, it takes 6 months for that to be done, then maybe another year after the FID for it to be engineered, then perhaps a year and a half for construction and procurement. If all is okay and government is good, everything is in a good shape. Given what's happening geopolitically, things do delay, but it should not delay on the engineering side. The expectation is H1 2027, and we would provide guidance on that. On your second question, I agree with you. Yes, there is a good gearing, a good movement of cash. Cash conversion is high and what have you. The policy is from 60% to 80%.

Speaker #5: After the FID for it to be engineered, then perhaps a year and a half for construction and procurement. If all is okay and Bab al-Mandab is good, then everything is in good shape.

Speaker #5: But of course, given what's happening geopolitically, things do kind of delay. But it should not delay on the engineering side. So the expectation is the first half of 2027.

Speaker #5: And we would provide guidance on that. On your second question, I agree with you. Yes, there is good gearing and good movement of cash; cash conversion is high.

Speaker #5: And what have you. But the policy is from 60% to 80%. We could always give more, but also we need to manage expectations.

Samer Al-Hokail: We could always give more, we need to manage expectations and also the CapEx that will be spent in the future on those projects. We could also lever up. It gives us optionality on that capability. Maybe Saud can even elaborate more on that end.

Speaker #5: And also the capex that will be spent in the future on those projects. We could also lever up, so it gives us optionality on that ability.

Speaker #5: And I'll have maybe Saud can even elaborate more on that end.

Speaker #3: Yeah, what you have mentioned, Mr. President, is right. And thank you, Mohamed, for that question. This is one of the things that we are always evaluating here at Lubref.

Saud Kamakhi: Yeah. What you have mentioned, Mr. President, is right, thank you, Mohammed, for that question. This is one of the things that we always evaluating at Luberef here. Future project is also important to consider because they play a role as we have low gearing right now. Opportunities are always there, with the moving of the new future project

Speaker #3: Future project is also important to consider because they play a role as we have low gearing right now. Opportunities are always there. And with the moving of the future project, those projects will be assessed on to be an equity debt to equity basis.

Saud Kamakhi: Those projects will be assessed on to be an debt to equity basis based on the environment and the interest rate and all of the other factors that will help us with a low gearing ratio. We have a room there to leverage, and we always going to keep you posted once we have more information about that and moving forward to that direction. Yes, we have that opportunity so far due to our current robust balance sheet.

Speaker #3: Based on the environment, interest rates, and all of the other factors that will help us, with the low gearing ratio, we have room there to leverage.

Speaker #3: And we are always going to keep you posted once we have more information about that and move forward in that direction. But yes, we have that opportunity so far.

Speaker #3: Due to our current, robust balance sheet.

Speaker #2: Thank you. Thanks. Thank you, Mohamed. We have two questions that are being typed. I will take them right now. The first one is from Mr. Ahmad from Basro, Germany.

Saleh Alghamdi: Thank you. Thanks. Thank you, Mohammed. We have two questions that are being typed. I will take them right now. The first one from Mr. Emad from Basra, Germany. Actually, Emad has two questions. I will read them out loud. One, you called it a record crack margin. An investor seeing the record will assume it cannot last, and eventually the share price will fall. What would you want them to understand? Second, you moved the Growth II shutdown to October so you could keep selling at those margins. If margins are still strong in October, would you look at that timing again?

Speaker #2: Actually, Ahmad has two questions. I will read them out loud. One: you called it a record crack margin. An investor seeing a record will assume it cannot last.

Speaker #2: And eventually, the share price will fall. What would you want them to understand? Second, you moved the growth shutdown to October so you could keep selling at those margins.

Speaker #2: If margins are still strong in October, would you look at that timing again?

Samer Al-Hokail: Maybe I can take the first question, or, Rabah, did you want to go?

Speaker #3: Maybe I can take the first question, or—but it is on Q2.

Speaker #5: Yeah, proceed. That's fine.

Saleh Alghamdi: Yeah, proceed. That's fine.

Speaker #3: So, for the first question, Ahmad, yes, we mentioned that it is a record crack margin because this is the current environment. However, we always refer back to the historic crack margin that we have.

Saud Kamakhi: For the first question, Emad, yes, we mentioned that is a record base oil crack margin because this is the current environment. However, we always refer back to the historic base oil crack margin that we have. The share price, this is something that will be determined by the market. It's not by the company. Here we do not advise to any direction here on our share sales. This is all that shares will be evaluated not only due to this current market environment, but also for our future project that we are looking to invest in and expected in the future. This is what we want to maybe answer this question by that. For the second question of moving the shutdown to October and if this margin keep-

Speaker #3: I think the share price is something that will be determined by the market; it's not by the company. So I think here we do not advise in any direction here on our share sales.

Speaker #3: But this is all that shares will be evaluated not only due to this current market environment, but also for our future projects that we are looking to invest in and expect in the future.

Speaker #3: So, this is what we want to—maybe answer this question by that. For the second question, about moving the shutdown to October and if these margins keep—maybe this is, you want to take that.

Samer Al-Hokail: Yeah

Samer Al-Hokail: Maybe, Rabah, did you want to take that?

Speaker #5: Yes, will do. Back to the margins, Ahmad, thanks for the question. I think, yeah, it's always the case—when margins are low, they're not going to always be low.

Samer Al-Hokail: Yes, will do. Back to the margins, Emad. Thanks for the question. It's always the case when margins are low, they're not going to be always low. I mean, up. They're not going to be always at the high side. They will go down. If they went down on the lowest, the market would turn at some point. What's important here, Emad, is management involvement to keep the facility up and running and reliable and safe so we can enjoy good margins when the market turns, but also sustain free cash flow even if the margins are low. The share price is always just a byproduct of that activity.

Speaker #5: I mean, they're not always going to be on the high side. They will go down, and if they go down to the lowest, they will.

Speaker #5: The market would turn at some point. What's important here, Ahmad, is management involvement to keep the facility up and running, reliable, and safe.

Speaker #5: So we can enjoy good margins when the market turns, but also sustain cash flow even if the margins are low. The share price is always just a byproduct of that activity.

Speaker #5: On whether we are able to, or whether we kind of think of delaying the shutdown in October or not, I think part of that is being an agile organization by creating value and capturing value during volatile markets.

Samer Al-Hokail: On the whether we are able to or whether we think of delaying the shutdown in October or not, part of that is being an agile organization by creating value and capturing value during volatile markets and volatile conditions. We've demonstrated doing that. If the opportunity presents itself to do so, part of the agility and to move fast as an organization, we've demonstrated that might be an option on the table. It will be at the expense of something else. We'll have to weigh it and analyze it and make a strategic decision. I will have to make that decision going forward by a consensus with the management team. Of course, our customers. We have obligations with our customers, with their nominations, with their orders.

Speaker #5: And volatile conditions. And I think we've demonstrated doing that. If the opportunity presents itself to do so, I think part of the agility to move fast as an organization—we've demonstrated that—that might be an option on the table.

Speaker #5: But it will be at the expense of something else, so we'll have to wait and analyze it, and make a strategic decision. I will have to make that decision going forward, by consensus with the management team.

Speaker #5: And of course, we have obligations to our customers, with their nominations and with their orders, so we'll have to take all that into consideration.

Saleh Alghamdi: I'll have to put all that into consideration. Thank you. Thank you, Mr. President. There is another typed question from Mr. Naif Bin Raef. Congrats on a strong quarter. I have a question on the turnaround. Did Aramco go through with their planned shutdown, and do you see room to move the turnaround to 2027? The second question is what drove the decline in Group I assume, Naif, you are referring to Group I compared to Group II prices, given that during the crisis they were closely aligned. Question number one is about the turnaround schedule. The second one is related to the market dynamics. Mr. President, would you like to answer one? You can take this, yes, Waleed. Okay. Thank you, Mr. President.

Speaker #2: Thank you. Thank you, Mr. President. I will now—there's another typed question from Mr. Naif Benreif. Congrats on a strong quarter. I have a question on the turnaround.

Saleh Alghamdi: Thank you, Mr. President. There is another typed question from Mr. Naif Bin Raef. Congrats on a strong quarter. I have a question on the turnaround. Did Aramco go through with their planned shutdown, and do you see room to move the turnaround to 2027? The second question is what drove the decline in Group I assume, Naif, you are referring to Group I compared to Group II prices, given that during the crisis they were closely aligned. Question number one is about the turnaround schedule. The second one is related to the market dynamics. Mr. President, would you like to answer one?

Speaker #2: Did Aramco go through with their planned shutdown? And do you see room to move the turnaround to 2027? The second question is, what drove the decline in Group I—I'm assuming now if you're referring to Group I versus Group II—prices?

Speaker #2: Given that during the crisis they were closely aligned, question number one is about the turnaround schedule. The second one is related to the market dynamics.

Speaker #2: Mr. President, would you like to answer one?

Speaker #5: You can take this, Sir Saleh.

Samer Al-Hokail: You can take this, yes, Waleed.

Speaker #2: Okay, so thank you, Mr. President. So Naif, to answer your question, we are not in any position to speak on behalf of Aramco regarding whether they have changed their schedule or not.

Saleh Alghamdi: Okay. Thank you, Mr. President.

Saleh Alghamdi: Naif, to answer your question, we are not in a place to speak on behalf of Aramco in regards to this, whether they changed their schedule or not. Do we see room to move the turnaround to 2027? I believe this is repeated from Mr. Emad from Basra, and the President covered this part. Moving to your question related to the market dynamics. If we take a step back in Q1, both groups were closely aligned due to the fact that the whole market suffered from a shortage in base oil supply. As we moved further into Q2, some normalization happened in Group I. Group II, on the other hand, is mostly still strong. The demand is strong there due to the fact that it is partially compensating for the severe shortage in Group III.

Speaker #2: But do we see room to move the turnaround to 2027? I believe this is repeated for Mr. Ahmad from Basro.

Speaker #2: And the President covered this part. Moving to your question related to the market dynamics: if we take a step back, in Q1 both groups were closely aligned due to the fact that the whole market suffered from a shortage in base oil supply.

Speaker #2: But as we moved further into Q2, some normalization happened in Group 1. Group 2, on the other hand, is mostly still strong. The demand is strong there due to the fact that it is partially compensating for the shortage—the severe shortage—in Group 3.

Speaker #2: And mainly, that is what's keeping—that is what is keeping—the Group II prices relatively stronger during the period, while Group I started to normalize.

Saleh Alghamdi: Mainly that is what is keeping the Group II prices relatively stronger during the period while Group I started to normalize. I hope I answered your question. Now moving again to the live participants. Mr. Fahad Jabeer, please step forward.

Speaker #2: I hope I answered your question. Now, moving again to the live participants. Mr. Taha Jadid, please step forward.

Speaker #3: Yeah, thank you so much. Thank you so much, management. So, a couple of questions. One was around this Group II-related shutdown in October.

Fahad Jabeer: Thank you so much. Thank you so much, management. A couple of questions. One was around this Q2 related shutdown in October or whenever you feel it is more feasible, but just the timing of it, how long or how many days will this shutdown last? The remaining CapEx that will go into this. I think in the slide, you showed $300 to 350 million. Is this the remaining CapEx that is left regarding the expansion?

Taha Javed: Thank you so much. Thank you so much, management. A couple of questions. One was around this Q2 related shutdown in October or whenever you feel it is more feasible, but just the timing of it, how long or how many days will this shutdown last? The remaining CapEx that will go into this. I think in the slide, you showed $300 to 350 million. Is this the remaining CapEx that is left regarding the expansion?

Speaker #3: Or whenever you feel it's more feasible. But just regarding the timing of it, how long—how many days will this shutdown last? And the remaining capex that will go into this—I think in the slide you showed SAR 300 to 350 million.

Speaker #3: Is this the remaining CapEx that is left regarding the expansion?

Speaker #2: Okay. So the question is, number one is related—number one is straightforward. So the shutdown duration is a one-month period, inshallah, the same duration that was moved from August to October.

Saleh Alghamdi: Okay. The questions, number one is related. Number one is straightforward. The shutdown duration is a one-month period, inshallah. The same duration that was moved from August to October. Coming to the CapEx question.

Speaker #2: Coming to the capex question.

Speaker #3: So for our capex, Mr. Jadid, as we mentioned, we spent, by the end of Q2, around 119 million Saudi riyals allocated for this project.

Saud Kamakhi: For our CapEx, Mr. Javid, as we mentioned, that we spend during the, by the end of Q2, around SAR 119 million allocated for this project. That will bring the total CapEx amount during, since we begin, is around SAR 384. As you know that the budget for that project is around SAR 750. What we saw in the slide earlier, that the guidance for this year is around between SAR 300 to 350, where we are expecting to be within that guidance during the next period. We are talking about remaining in H2 from SAR 180 to 230 million. That would close that additional amount. Maybe we're left with maybe around SAR 100 to 150 for the next year. I hope that answered your question.

Speaker #3: That will bring the total CapEx amount, since we began, to around $384 million. As you know, the budget for that project is around $750 million.

Speaker #3: And what we saw in the slide earlier, that the guidance for this year is around between 300 to 350, where we are guidance during the next period.

Speaker #3: So we are talking about remaining in the second half, from 180 to 200, $30 million. That would close that additional amount. Maybe we're left with around $100 to $150 million for next year.

Speaker #3: I hope that answered your question.

Speaker #4: Interesting. Thank you so much. And just on the byproduct, obviously in Q2, I guess it declined a lot. So, what are the trends for July?

Fahad Jabeer: It has. Thank you so much. Just on the by-product, obviously Q2, I guess it declined a lot. What are the trends for July? Because diesel prices are up a lot, I think, at least during the recent month. If you can just guide a little bit on how you see by-products for Q3.

Taha Javed: It has. Thank you so much. Just on the by-product, obviously Q2, I guess it declined a lot. What are the trends for July? Because diesel prices are up a lot, I think, at least during the recent month. If you can just guide a little bit on how you see by-products for Q3.

Speaker #4: Because diesel prices are up a lot in the recent month, could you just guide a little bit on how you see byproducts for Q3?

Speaker #2: Could you please repeat the question, Mr. Taha? Or was it someone who is a bit far away?

Saleh Alghamdi: Could you please repeat the question? Mr. Taha, your voice is a bit far away.

Speaker #4: Apologies. I just wanted to know about byproducts and margins. I think byproduct pricing for Q2 was on the lower side. Are you seeing any trends for Q3? For example, I think in July, diesel at least is up a lot.

Fahad Jabeer: Apologies. Just wanted to know like by-products margins. I think like by-products pricing for Q2 was on the lower side. Any trends that you're seeing for Q3, like July, I think diesel at least is up a lot, diesel prices. How do you see Q3 by-products pricing moving forward?

Taha Javed: Apologies. Just wanted to know like by-products margins. I think like by-products pricing for Q2 was on the lower side. Any trends that you're seeing for Q3, like July, I think diesel at least is up a lot, diesel prices. How do you see Q3 by-products pricing moving forward?

Speaker #4: Diesel prices: so how do you see Q3 byproducts pricing going forward?

Speaker #2: Naif, if we look at it in general, Mr. Jadid, this is a very volatile market—especially for those types of byproducts. Giving a future direction or expectation is not an easy thing to do right now.

Saud Kamakhi: If we look at it in general, Mr. Javid, this is a very volatile market, especially on those type of by-products. Giving future the direction or expectation is not an easy way to do it right now. However, we see that movement of those by-products usually go with the oil prices where there's a lot of relationship between them. We saw some volatility on that, for future perspective, maybe it's not our role here to give that at this point. This is at least how we see it in the next quarter.

Speaker #2: However, we see that movement of those by-products usually goes with the oil prices, where there's a lot of relationship between them. We saw some volatility on that, but for future perspective, maybe it's not our role here to give that at this point.

Speaker #2: This is at least how we see it in the next quarter.

Speaker #4: Great. Thank you so much, Mr. Saleh. Thank you.

Fahad Jabeer: Great. Thank you so much. Best wishes for the year. Thank you.

Taha Javed: Great. Thank you so much. Best wishes for the year. Thank you.

Speaker #2: Thank you, Mr. Jadid. Moving to Mr. Nawaf El Ainzi. Mr. Nawaf, please step forward. Mr. Nawaf? Okay, I will come back to you later, Mr. Nawaf.

Saleh Alghamdi: Thank you, Mr. Javid. Moving to Mr. Nawaf Alanezi. Mr. Nawaf, please step forward. Mr. Nawaf? Okay. I will come back to you later, Mr. Nawaf. Moving to Mr. Eldar Khaziev, HSBC. Mr. Eldar?

Speaker #2: Moving to Mr. Eldar Khaziyev, HSBC. Mr. Eldar, yes.

Eldar Khaziev: Yes. Thank you so much, and congratulations on very strong numbers. I have a question about the volatility of the H4 prices. In the past, when we have seen this happening in the market, you have reported inventory revaluation gains and losses. Can you tell us whether there have been anything like this in Q1 and Q2? If yes, could you possibly quantify those gains and losses? Thank you so much.

Ildar Khaziev: Yes. Thank you so much, and congratulations on very strong numbers. I have a question about the volatility of the H4 prices. In the past, when we have seen this happening in the market, you have reported inventory revaluation gains and losses. Can you tell us whether there have been anything like this in Q1 and Q2? If yes, could you possibly quantify those gains and losses? Thank you so much.

Speaker #5: Thank you so much, and congratulations on the very strong numbers. I have a question about the volatility of HS4 prices. In the past, we have seen this happening in the market.

Speaker #5: You have reported revaluation, inventory revaluation gains and losses. Can you tell us whether there have been any like this in Q1 and Q2, and if yes, could you clarify the losses?

Speaker #5: Thank you so much.

Speaker #2: Mr. Khaziyev, I believe you're referring to the inventory evaluation in the financial statements.

Saleh Alghamdi: Mr. Khaziev, I believe you are referring to the inventory valuation in the financial statements.

Speaker #5: Yes.

Eldar Khaziev: Yes.

Ildar Khaziev: Yes.

Speaker #2: So, I will leave it to Mr. Kemaki to answer this.

Saleh Alghamdi: I will leave it to Mr. Alkamaati to answer this.

Saud Kamakhi: Thank you, Mr. Elder, and thank you for your great question. Yes. We have been noticed during, as you know that during end of Q1, feedstock prices have increased dramatically during March after all the geopolitical events that happened, starting 28 February. During Q2, we have noticed also a dramatic normalization of that feed prices during Q2. Comparing between 2 quarters, yes, there have been already impact from the inventory valuation because of the drop of that feedstock. I don't have a current figure right now in front of me exactly, but we expect that between $40 to 50 million maybe impact, that where you can see a little bit difference from net income perspective comparing to ourselves.

Speaker #3: Naif, thank you. Mr. Elder, thank you for your great question. Yes, we have noticed, as you know, that toward the end of Q1, feedstock prices increased dramatically during March after all the geopolitical events that happened starting on the 28th of February.

Speaker #3: And that during second quarter, we have noticed also a dramatic normalization of that feed prices during Q2. So comparing between two quarter, yes, there will be there have been already impact from our from the inventory revaluation because of the drop of that feedstock.

Speaker #3: I don't have a current figure right now in front of me, exactly, but we expect that between $40 million to $50 million may be the impact.

Speaker #3: And that's where you can see a little bit of a difference from a net income perspective, compared to ourselves.

Speaker #2: Thank you very much. And should I assume that there was a similar opposite?

Eldar Khaziev: Thank you very much. Should I assume that there was a similar opposite impact in Q1 of a similar magnitude?

Ildar Khaziev: Thank you very much. Should I assume that there was a similar opposite impact in Q1 of a similar magnitude?

Speaker #5: Impact in one quarter of a similar magnitude?

Speaker #3: There was an impact, but maybe not with the same value; but there was an impact.

Saud Kamakhi: There was an impact, but maybe not that with the same value, but there was an impact.

Speaker #5: Okay. Thank you so much.

Eldar Khaziev: Okay. Thank you so much.

Ildar Khaziev: Okay. Thank you so much.

Speaker #3: Thank you.

Saud Kamakhi: Thank you.

Speaker #2: Thank you, Elder. Always good to speak with you. Mr. Abdallah Wahabi. Mr. Abdallah, please step forward.

Saleh Alghamdi: Thank you, Eldar. Always good to speak with you. Mr. Abdullah Aluheibi? Mr. Abdullah, please step forward.

Speaker #5: Yes. Hello. Am I audible?

Abdullah Aluheibi: Yes. Hello, am I audible?

Speaker #2: Yes, Abdallah, loud and clear.

Saleh Alghamdi: Yes, Abdullah, loud and clear.

Speaker #5: Okay. Thank you, management, for the presentation and for the opportunity to ask questions. I have two questions on my side. The first one is regarding the rerouting from Bab el Mandeb.

Abdullah Aluheibi: Okay. Thank you management for the presentation and for the opportunity to ask questions. I have two questions on my side. The first one is regarding the rerouting from Bab el-Mandeb. Do you expect this to affect your volumes hold in the H2? How much do you expect the logistic cost to affect your crack margin? It would be really informative if you could give us some color on the crack margin of Group III and how much it differs from your current portfolio of base oil. For the last five or 10 years, I believe this would be really important to understand how much Group III differs in terms of profitability. Thank you. That's my question.

Speaker #5: Do you expect this to affect your volumes sold in the second half? And how much do you expect this to how much do you expect the logistic cost to affect your crack margin?

Speaker #5: Second, it would be really informative if you could give us some color on the crack margin of Group 3 and how much it differs from your current portfolio of base oil.

Speaker #5: I mean, for the last five or ten years, I believe this would be really important to understand how much Group 3 differs in terms of profitability.

Speaker #5: Thank you. That's my question.

Speaker #2: Thank you, Abdallah. So, the first question is related to the Bab el Mandeb situation. If quantifiable, how much can it affect our performance?

Saleh Alghamdi: Thank you, Abdullah. The question one is related to the Bab el-Mandeb situation. If quantifiable, how can it affect our performance? The second question is about the spread of Group III relevance to the other groups of base oil. Mr. President, would you like to answer?

Speaker #2: The second question is about the spread of Group 3 relative to the other groups of base oil. Mr. President, would you like to answer?

Speaker #5: Oh, yes. Thank you, Abdallah, for the questions. Can you maybe probably if you help you think through this, it's a longer route. So on your models, probably you want to add an additional 45 to 60 days.

Samer Al-Hokail: Oh, yes. Thank you Abdullah, for the questions. Maybe, probably if you help you think through this, it's a longer route. On your models, probably you want to add an additional 45 to 60 days. That's a good way to calculate. Then maybe calculate way back on how would that affect the crack margin. At the end, it's a working capital. The freight, as I mentioned, is negotiated between the both. Some will actually pick up the full freight, some will just negotiate on that. You could put that assumption there in the models and work your way through on the cracks on that. That answers the question itself. I don't foresee a huge change, but definitely there is a change because it's a longer route. How long that will stay for? You could assume, maybe, I'm not sure how.

Speaker #5: That's a good way to calculate, and then maybe calculate a way back on how that affects the crack margin. At the end, it's a working capital.

Speaker #5: The freight, as I mentioned, is negotiated between both parties. Some will actually pick up the full freight, and some will just negotiate on that.

Speaker #5: So you could put that assumption there in the models, and work your way through on the cracks on that. So that answers the question itself.

Speaker #5: I don't foresee a huge change. But definitely, there is a change because it's a longer route. How long that will stay for, you could assume—maybe. I'm not sure. We're not really vested in the geopolitics, and nobody knows.

Samer Al-Hokail: We are not really vested in the geopolitics and nobody knows. It's almost like a crystal ball. Every day is evolving. You could put that as well in the model for that. On the crack margins on Group III, yes, usually Group III is sold higher than 1 and 2. Sometimes the market really rewards Bright Stock even higher than Group III in Europe. It's happened. I've seen it, actually, and it's interesting market condition. I'll leave that more with the CFO on how would you want to think about Group III. I think we will be giving guidance very soon on the production of Group III and all the groups or at least the production on the facility itself.

Speaker #5: It's almost like a crystal ball, so every day is evolving. You could put that as well in the model for that. On the crack margins on Group III, yes, it's usually Group III is sold higher.

Speaker #5: Than one and two. But sometimes the market really rewards bright stock even higher than Group III in Europe. And it happened, I've seen it actually.

Speaker #5: And it's interesting—market conditions. But I'll leave that more with the CFO on how you want to think about Group III. I think we will be giving guidance very soon.

Speaker #5: On the production of Group 3 and all the groups, or at least the production at the facility itself.

Speaker #3: Naif, thank you, Mr. President. I think—yes, and Abdallah, for your question, for the first one. Also, some of our customers are starting to pick up the product as FOB.

Saleh Alghamdi: Thank you, Mr. President. I think, yes, Abdullah, for your questions. For the first one, some of our customers are starting to pick up the product as FOB. That is also a realized gain immediately even without taking that. We have that rerouting option and also pick up from our port. For the second question, I really see that two different views, by the way, here. If we are talking before the geopolitical tension escalation, usually we see that crack margin has a SAR 200 to 300 per metric ton premium. In the last few months that we saw that number has been increasing dramatically, where at certain points it reached around SAR 1,000 over Group II, we are talking here. That's because of the limited supply in the market. We can have around 2 million in nameplate capacity during in the supply perspective.

Saud Kamakhi: Thank you, Mr. President. I think, yes, Abdullah, for your questions. For the first one, some of our customers are starting to pick up the product as FOB. That is also a realized gain immediately even without taking that. We have that rerouting option and also pick up from our port. For the second question, I really see that two different views, by the way, here. If we are talking before the geopolitical tension escalation, usually we see that crack margin has a SAR 200 to 300 per metric ton premium. In the last few months that we saw that number has been increasing dramatically, where at certain points it reached around SAR 1,000 over Group II, we are talking here. That's because of the limited supply in the market. We can have around 2 million in nameplate capacity during in the supply perspective.

Speaker #3: So, that is also a realized gain immediately, even without taking that route. So, we have that rerouting option and also pickup from our port.

Speaker #3: For the second question, I really see that there are two different views, by the way. If we are talking about the period before the geopolitical tension escalation, usually we see that crack margin has a $200 to $300 per metric ton premium.

Speaker #3: But in the last few months, we saw that number increasing dramatically, where at a certain point it reached around $1,000 over Group II, if we are talking here.

Speaker #3: So that's because of the limited supply in the market. We can have around 2 million in nameplate capacity from a supply perspective. So that also impacted the availability of that product, and the demand was higher in that area.

Saleh Alghamdi: That impacted also the availability of that product and the demand was higher on that area. That we see the different gap in Group III+. I hope that answers the question, Abdullah.

Saud Kamakhi: That impacted also the availability of that product and the demand was higher on that area. That we see the different gap in Group III+. I hope that answers the question, Abdullah.

Speaker #3: So that we see the different gap in Group III plus. I hope that answers the question.

Speaker #5: That's clear. Thank you. Thank you, Management.

Abdullah Aluheibi: That's clear. Thank you. Thank you, management.

Speaker #2: Thank you. So, I'm going to take one written question and then move on to the next live audience question. This one is by Mr. Abdallah Hakami.

Saleh Alghamdi: Thank you. I'm going to take one written question and then move on to the next live audience. A question by Mr. Abdullah Al-Hakimi. Given that Jeddah is now extended, do you think you will be able to reach 1.6 million base oil production capacity in Yanbu? Another, I think, sub-question, would you be able to give an update on Jazan potential project and what kind of CapEx are you looking at? I can answer this question if you like, Mr. President.

Saud Kamakhi: Thank you.

Saleh Alghamdi: I'm going to take one written question and then move on to the next live audience. A question by Mr. Abdullah Al-Hakimi. Given that Jeddah is now extended, do you think you will be able to reach 1.6 million base oil production capacity in Yanbu? Another, I think, sub-question, would you be able to give an update on Jazan potential project and what kind of CapEx are you looking at? I can answer this question if you like, Mr. President.

Speaker #2: Given that Jidda is now extended, do you think you will be able to reach 1.6 million base oil production capacity in Yanbu? Another, I think, sub-question.

Speaker #2: Would you be able to give an update on the Jazam potential project and what kind of capex you are looking at? I can answer this question if you like, Mr. President.

Speaker #5: Yes, Saleh, proceed, please.

Samer Al-Hokail: Yes, Saleh. Proceed, please.

Speaker #2: Okay. So, Abdallah, in terms of nameplate capacity, the estimated total production, including Jidda and Yanbu after Growth 2, is going to fall in the range of 1.5 to 1.55 million metric tons, give or take.

Saleh Alghamdi: Okay. Abdullah, in terms of nameplate capacity, the estimated total production including Jeddah and Yanbu after Growth II is going to fall in the range of 1.5 to 1.55 million metric tons, give or take. Keep in mind that, and I am sure that you are familiar with this, we do not maximize the Group I production out of Yanbu. This would leave theoretically the production a little bit beneath 1.5 million metric tons of base oil with a split of approximately 78% to 80% of Group I, 10% Group II, 10% Group III. That is what the ultimate composition would look like, give or take. Related to Jazan, Mr. President shed the light on this. The project is currently at 3 engineering phases, meaning that all of the project deliverables are within the ±30% or even 40% numbers. There is not a solid, structured CapEx or capacity identified yet.

Speaker #2: Keep in mind that, and I'm sure you're familiar with this, we don't maximize the Group I production out of Yanbu. This would leave, theoretically, the production a little bit beneath 1.5 million metric tons of base oil.

Speaker #2: With a split of approximately 78 to 80 percent of Group I, 10 percent Group II, and 10 percent Group III, that's what the ultimate composition would look like, give or take.

Speaker #2: Related to Jazan, Mr. President, shed some light on this. The project is currently at pre-engineering phases, meaning that all of the product deliverables are within plus or minus 30 or even 40 percent numbers.

Speaker #2: There is not a solid, structured capex or capacity identified yet. It's still before taking the project to the next phase. We are happy to discuss this further, if you wish, after the early call.

Saleh Alghamdi: It is still being subject to engineering evaluation before taking the project to the next phase. We are happy to discuss this further, if you wish, after the earning call. Moving back again to the live audience, we have Mr. Irfan Khan from Derayah Financial. Mr. Irfan Khan, could you please step forward?

Speaker #2: Moving to the back again, to the live audience. We have Mr. Iranjan from Diraya Financial. Mr. Iranjan, could you please step forward?

Speaker #4: Hello.

Irfan Khan: Hello.

Speaker #2: Hi, Mr. Iranjan.

Saleh Alghamdi: Hi, Mr. Irfan Khan.

Speaker #4: Am I audible?

Irfan Khan: Am I audible?

Speaker #2: Yes, you are.

Saleh Alghamdi: Yes, you are.

Speaker #4: Yeah, if I may, I'd like to ask a couple of brief questions. The first one is on your alliance sales. I'm just wondering if these logistical challenges had an impact on those sales.

Irfan Khan: Yeah. If I may ask a couple of brief questions. The first one is on your alliance sales. Just wondering if these logistical challenges had an impact on those sales. The second one is once again on diesel. I was just wondering whether there was any changes in the volume sold during Q2 versus Q1.

Speaker #4: And the second one is, once again, on diesel. I was just wondering whether there were any changes in the volume sold during Q2 versus Q1.

Speaker #2: Sorry, Iranjan. I did not get the second question. Let me repeat the first one, then I would like you, please, to repeat the second one.

Saleh Alghamdi: Sorry, Irfan Khan. I did not get the second question. Let me repeat the first one, then I would like you please to repeat the second one. The first one you're talking about the alliance sales and whether or not they were impacted. Could you please repeat the second one?

Speaker #2: So, for the first one, you're talking about the alliance sales and whether or not they were impacted. But could you please repeat the second question?

Speaker #4: Yeah. The second kind of question is regarding the diesel volume — whether those volumes saw a big change in Q2 versus Q1, or were they similar?

Irfan Khan: Yeah. The second question is regarding the diesel volumes. Whether those volumes, there was a big change in Q2 versus Q1, or was it similar?

Speaker #2: Okay. So, for the first question,

Saleh Alghamdi: Okay. For the first question.

Speaker #5: You can take this, yes, Saleh, if you want.

Saud Kamakhi: You can take this, Saleh, if you want.

Samer Al-Hokail: You can take this, Saleh, if you want.

Speaker #2: Yeah. Okay.

Saleh Alghamdi: Yeah. Okay. For that, Saleh.

Saleh Alghamdi: Yeah. Okay.

Speaker #3: So for that, Saleh will—Naif, sorry. For the first question, the challenges that we face during the current situation, as we mentioned earlier, the challenges have already been addressed and we have the mitigation plan.

Saud Kamakhi: For that, Saleh. Sorry. For the first question, the challenges that we face during the current situation, as we mentioned that earlier, before. The challenges has been already. We have the mitigation plan. We have our, that we go a different routing. We do not see that much impact on that in our next quarter, that huge impact, because we already started to activate these plans.

Saud Kamakhi: Sorry. For the first question, the challenges that we face during the current situation, as we mentioned that earlier, before. The challenges has been already. We have the mitigation plan. We have our, that we go a different routing. We do not see that much impact on that in our next quarter, that huge impact, because we already started to activate these plans.

Speaker #3: We have our, that we go a different routing. And we do not see that much impact on that in our next quarter—that huge impact—because we already started to activate these plans.

Speaker #2: Thank you, Mr. Stewart. For the second question, typically diesel quantities do not change much month to month due to the nature of the refinery.

Saleh Alghamdi: Thank you, Mr. Saleh. For the second question. Typically, diesel quantities do not change much month-to-month due to the nature of the refinery. You have a cap or a typical production quantity or percentage of diesel. You do not get that flexibility to severely maximize that on the expense of base oil. The typical guidance quarter-to-quarter on diesel terms does not change significantly.

Speaker #2: So you have a cap, or a typical production quantity, for the percentage of diesel. You do not get that flexibility to severely maximize that at the expense of base oil.

Speaker #2: So the typical guidance, quarter to quarter, on diesel trends does not change significantly.

Speaker #4: Okay. And regarding coming back to the diesel spreads, I mean, perhaps do you enjoy the same spreads maybe your counterparts in the West enjoy when it comes to diesel?

Irfan Khan: Okay. Regarding coming back to the diesel spreads, perhaps, do you enjoy the same spreads maybe your counterparts in the West enjoy when it comes to diesel? Because in those regions there is a big shortage of diesel. Here, I believe your diesel is indexed to more regional indices. Therefore, do you enjoy the same sort of very high spreads some of the refiners in the West enjoy, or is it much smaller spread?

Speaker #4: Because in those regions, there is a big shortage of diesel. But here, I believe your diesel is indexed to more regional indices. So therefore, do you enjoy the same sort of very high spreads that some of the refineries in the West enjoy?

Speaker #4: Or is it a much smaller spread?

Speaker #3: So, Mr. Iranjan, this is a good question. Our sales of diesel also follow the indexes that we have related to our customers and the sales in the region.

Saud Kamakhi: Mr. Irfan Khan, this is a good question. Our sales of diesel also follow the indexes that we are having related to our customers and the sales in the region. That margins, as we saw in Q1, has been captured due to the higher prices in those indices follow the prices of diesel globally also.

Speaker #3: So those margins, as we saw in the first quarter, have been captured due to the higher prices in those indices, which follow the prices of diesel globally as well.

Speaker #4: Okay. Okay. Thank you.

Irfan Khan: Okay. Thank you.

Speaker #2: Thank you. Moving to Mr. Akarash Tumar. Akarash Tumar, Mr. Akarash, could you please step forward?

Saleh Alghamdi: Thank you. Moving to Mr. Akash Tomar. Mr. Akash, would you please step forward?

Speaker #5: Hi. Thank you for the opportunity to ask a question, and thank you for the detailed presentation. This is Akarash Tumar from CECO Investment Bank, Bahrain.

Akash Tomar: Hi. Thank you for the opportunity to ask a question, and thank you for the detailed presentation. This is Akash Tomar from SICO Investment Bank, Bahrain. Congratulations on a great set of results. My question is broadly on the shutdown, but it has parts to it. Firstly, I wanted to understand, you had a shutdown last year in Q4 as well, and then 1 month shutdown is planned for the remainder of the year. After this shutdown, when once this is done, the 1 month in October, when is the big shutdown, which is of similar scale of 1 month? When can we expect the next shutdown to come? That's the first one. Secondly, earlier it was expected that this shutdown will kind of coincide with the new Growth II commissioning.

Speaker #5: Congratulations on a great set of results. So, my question is broadly on the shutdown, but it has parts to it. Firstly, I wanted to understand—you had a shutdown last year in both quarters?

Speaker #5: As well, and then one month shutdown is planned for the remainder of the year. So after this shutdown—once this is done, the one month in October—when is the big shutdown, which is of similar scale, of a month?

Speaker #5: When can we expect the next shutdown to come? That's the first one. And secondly, earlier it was expected that this shutdown would kind of coincide with the new Growth 2 commissioning.

Speaker #5: So, the plant will not remain closed for the commissioning of the new Growth phase. But now, that phase has been delayed to 2027.

Akash Tomar: The plant will not remain closed for the commissioning of the new Growth II phase. Now that phase has been delayed to 2027. Do we expect some closure of the plant in 2027 for the new capacity to come online? These two.

Speaker #5: So, do we expect some closure of the plant in 2027 for the new capacity to come online? These two.

Speaker #4: So just to make sure I address your question, I think that we need to allow me to do some differentiation here. So the shutdown, shutdown is basically a general terminology.

Saleh Alghamdi: Just to make sure I address your question, I think that we need to allow me to do some differentiation here. The shutdown is basically a general terminology, but let me walk you through the details of it. The shutdown that took place in end of 2025, that's what we operationally refer to as a turnaround. It's an event that takes place every 5 to 6 years, a typical practice in refineries where the whole plant is taken into shutdown. No production, no intermediate stream, nothing. This is the event that took place. Despite whether we have a Growth II or not, we have to go through that exercise every once in a while.

Speaker #4: But let me walk you through the details a bit. The shutdown that took place at the end of 2025, that's what we operationally referred to as a turnaround.

Speaker #4: It's an event that takes place every five to six years—a typical practice in refineries where the whole plant is taken into shutdown. No production, no intermediate stream, nothing.

Speaker #4: This is the event that took place. Regardless of whether we have growth or not, we have to go through that exercise every once in a while.

Saleh Alghamdi: The shutdown that we are referring to in this context that was rescheduled from August to October, is to address the scope that is related to the expansion project, which is mainly in three units, in vacuum distillation, hydrocracker, and hydrodewaxing units. Due to multiple decisions, one of which was addressed by the president, is to capture the current favorable market environment. The shutdown was rescheduled to October, in which we will address the scope of the hydrocracker and isodewaxing units. Next remains the scope related to the vacuum distillation unit, which will take place sometime in H1 2027. I hope I addressed your question. You did mention something related to when will the big shutdown happen again. I want to go back to my first idea.

Speaker #4: The shutdown that we are referring to in this context that was rescheduled from August to October is to address the is to address the scope that is related to the expansion project, which is mainly in three units, in backing distillation, hydro cracker, and isodewoxing unit.

Speaker #4: Due to multiple decisions, one of which was addressed by the President, the aim is to capture the current favorable market environment. The shutdown was rescheduled to October, when we will address the scope of the hydrocracker and isodewaxing units.

Speaker #4: Next, there remains the scope related to the backing distillation unit, which will take place sometime in H1 2027. I hope I addressed your question.

Speaker #4: I think you answered just one thing related—you did mention something related to when the big shutdown happens again. So, if I want to go back to my first idea...

Speaker #4: If you're referring to a turnaround, a turnaround is an event that takes place every five to six years, and this will happen—you can't take it for granted.

Saleh Alghamdi: If you are referring to a turnaround, a turnaround is an event that takes place every five to six years, and this will happen. You can't take it for granted, that's my point. The shutdowns that we are talking about in today's earnings call's context are specifically for the Growth II project. I hope I answered your question.

Speaker #4: That's my point. The shutdowns that we are talking about in today's earnings call context are specifically for the Growth 2 project. I hope I answered your question.

Akash Tomar: Thanks so much. That makes it perfectly clear.

Speaker #5: Thank you so much. That makes it perfectly clear. So, this is—this will be, if I may, on that turnaround—what we mean by turnaround is test and inspection.

Samer Al-Hokail: Just maybe, if I may, on that turnaround, what we mean by turnaround is test and inspection. We'll have to test all the equipment and inspect them. One also thing is when we have an equipment with catalytic reaction, this will have to go down every two and a half years just to change the catalyst as they get consumed through the reaction. That's also well known in the industry. We try to time them together every other batch. If it's at every five years, we do a two and a half years, maybe for two weeks, three weeks, it depends what is the scope. A major one later on.

Speaker #5: We'll have to test all the equipment and inspect them. One other thing is when we have equipment with catalytic reaction, then this will have to go down every two to two and a half years, just to change the catalyst as they get consumed.

Speaker #5: Through the reaction. That's also well known in the industry. So we try to time them together every other batch. So if you said every five years, we do a two and a half year.

Speaker #5: Maybe for two weeks, three weeks. It depends on the scope. Then a major one later on.

Speaker #2: Well, thank you very much. That's very helpful, and that makes it very clear. So, regarding the expansion-related turnaround that you mentioned—one is the upcoming one in October.

Akash Tomar: Thank you very much. That's very helpful and that makes it very clear. If I may follow up on this, for expansion related turnaround that you mentioned, one is the upcoming one in October, then one you said in H1 2027. That will again be a month or so? Or is that different?

Speaker #2: And then one you said in the first half of 2027. So, that will again be a month or so? Or is that different?

Speaker #4: So basically, more guidance will be provided later in the year. Currently, there are some scenarios to be discussed. We don't have a clear picture of the time frame or the details of the H1 2027 highlights.

Saleh Alghamdi: Basically, more guidance will be cleared later in the year. Currently, there are some scenarios to be discussed. We don't have a clear picture of what is the timeframe or the details of the H1 2027 highlights.

Speaker #2: Thank you very much. That's very helpful. I have one more question, if you will allow me. I'll ask Noor. I'll get back in the queue.

Akash Tomar: Thank you very much. That's very helpful. I have one more question. If you will allow me, I'll ask now or I'll get back in queue.

Speaker #4: Please, please. Step forward. Yeah. What do you have?

Saleh Alghamdi: Please step forward. Yeah. What do you have?

Speaker #2: Oh, okay. Thank you so much. Just one follow-up to the previous questions: As of Q1, your by-product spreads and, generally, by-product margins are very low, as we have discussed in the past on these calls.

Akash Tomar: Thank you so much. Just on one follow-up to the previous questions. As of Q1, your by-product spreads. Generally, by-product margins are very low, as we have discussed in the past on these calls. Q1 was an exception where your spreads, by-product spreads, crack margins were SAR 70 per ton. Can you give us the number for the second quarter?

Speaker #2: But Q1 was an exception, where your by-product spreads, crack margins, were $70 per ton. So, can you give us the number for the second quarter?

Saleh Alghamdi: Yeah. For the second quarter it's SAR -12 per metric ton. That's the by-product crack margin.

Speaker #4: Yeah. So, for the second quarter, it's minus $12 per metric ton—that's the by-product crack margin.

Speaker #2: Okay. Thank you very much. That's very helpful. And all the best for the future.

Akash Tomar: Okay. Thank you very much. That's very helpful and all the best for the future.

Speaker #4: You're most welcome, Mr. Fawaz Khan. In my capital, could you please step forward? Wa alaikum assalam. Sorry for keeping you waiting. Assalamu alaikum.

Saleh Alghamdi: You're most welcome. Mr. Fawad Khan, ANB Capital. Could you please step forward?

Fawad Khan: Assalamualaikum. Can you hear me?

Saleh Alghamdi: Waalaikum salaam. Sorry for keeping you waiting. Assalamualaikum.

Speaker #6: No worries. Wa alaikum assalam. And thanks a lot for the opportunity to ask a question, and many congratulations on the strong set of results. I have three questions.

Fawad Khan: No worries. Thanks a lot for the opportunity to ask question and many congratulations on the strong set of results. I have three questions. Number one relating to the shutdown. Effectively, are we expecting the Group III production to start sometime in October, November with the shutdown of one month? Or we should expect Group III production to start sometime in H1 2027 whenever you have the vacuum distillation unit expanded?

Speaker #6: Number one, relating to the shutdown. So effectively, are we expecting the Group 3 production to start sometime in October or November, with the shutdown of one month?

Speaker #6: Or we should expect Group 3 production to start sometime in the first half of 2027, whenever you have the vacuum distillation unit expanded?

Speaker #4: Okay. That's the first question.

Saleh Alghamdi: Okay. That's the first question.

Speaker #6: Second question is on the by-product—sorry, on the inventory valuation. You mentioned during the call that there was around a $40 to $50 million impact.

Fawad Khan: Second question is on the by-product, sorry, the inventory valuation. You have mentioned during the call that it was around $40 to 50 million impact. Would there be any impact in Q3 just because of the inventory write down at the end of Q2? Secondly, which product, whether it's related to by-product or feedstock revaluation, this revaluation exercise refers to?

Speaker #6: So, would there be any impact in the third quarter, just because of the inventory write-down at the end of the second quarter? And secondly, which product—whether it's related to by-product or feedstock revaluation—does this revaluation exercise refer to?

Speaker #4: Okay. And the third?

Saleh Alghamdi: Okay. The third?

Fawad Khan: Third is basically a more kind of a general question. How should we look at the crack margin for the rest of the year? Let's assume if the situation remains like this and let's suppose in the scenario the situation improve from here on, how should we see crack margin normalizing into the 2027 or 2028?

Speaker #6: Third is basically a more general question. Looking at the – how should we look at the crack margin for the rest of the year?

Speaker #6: Let's assume the situation remains like this, and let's suppose, in another scenario, the situation improves from here on. How should we see crack margins normalizing into 2027 or 2028?

Speaker #4: So, the first question is related to the shutdown in October, and whether or not Group III production would follow. Mr. President, would you like to answer this?

Saleh Alghamdi: First question is related to the shutdown in October and whether or not Group III production would follow. Mr. President, would you like to answer this?

Speaker #6: Yeah. That's right.

Fawad Khan: Yeah, that's right.

Speaker #2: Thanks. Okay, very well. That's an important part of our growth story. Mr. Producer, Group I, then move to Group II plus and become niche, and become a one-stop shop.

Samer Al-Hokail: Okay. Very well. That's an important part of our growth story, is to produce Group III, then move to Group III+ and become niche and become a one-stop shop. We aspire to do so in October, or we'll give further guidance during that shutdown, or maybe before that shutdown, of course, about Group III production and perhaps scale it up in H1 2027. The nature of the business, again, just to help you think through this, it's not like a refinery where you're able to right away ramp up the refinery to produce fuels and sell it and trade it. It's just much liquid. In our case, we have to line up our marketing plans, our customer plans, what they're able to lift and not. We can go a little bit spot, but the market isn't as liquid as the fuels.

Speaker #2: We aspire to do so. In October, we'll give further guidance—during that shutdown, or maybe before that shutdown, of course—about Group III production.

Speaker #2: And perhaps scale it up in H1 2027. The nature of the business—again, just to help you think through this—it's not like a refinery where you're able to right away ramp up the refinery to produce fuels and sell it and trade it.

Speaker #2: It's just much liquid. In our case, we have to line up our marketing plans, our customer plans, what they're able to lift and not.

Speaker #2: We can go a little bit spot, but the market isn't as liquid as the fuel, so a lot of planning needs to be done.

Samer Al-Hokail: A lot of planning that needs to be done. Therefore, scaling up Group III will take time to hit the nameplate, if any, if it would ever hit the nameplate in that area. That's our aspiration. We've done that in the past, and I'm sure we can do it in the future. For the inventories, I think I'll leave the CFO and the crack margins as well, Yasser, maybe you or Saleh can handle.

Speaker #2: Therefore, scaling up Group 3 will take time. To hit the nameplate, if any—if it would ever hit the nameplate—in that area. But that's our aspiration.

Speaker #2: We've done that in the past, and I'm sure we could do it in the future. For the inventories, I think I'll leave that to the CFO, and the crack margins as well as maybe you or Salah can handle.

Speaker #4: Oh, thank you, Mr. President. So for the second question, on inventory valuation, the question was about any expected impact in Q3.

Saleh Alghamdi: Thank you, Mr. President. For the second question, the inventory evaluation, the question was about any expected impact in Q3.

Speaker #6: That's right. Since the inventory has been written down at the end of the second quarter, how should we see the third quarter impact?

Fawad Khan: Yes, sir. Since the inventory has been written down at the end of Q2, how should we see the Q3 impact?

Speaker #4: So, Mr. Fawad, just to let you know that here we do that on a monthly basis. So, our reevaluation of our inventory happens on a monthly basis.

Saud Kamakhi: Mr. Fawad, just to let you know that here we do that in monthly basis. Our reevaluation of our inventory happens during monthly basis, where we see that because of the change in volatility, especially in our feedstock prices. Having mentioned that, as of July, maybe the volatility and the movement was not that severe compared to the previous period. It will depend on that movement if we see a huge increase to that or decrease from the current situation. Based on the forecast that we see, we do not see that future impact is coming from reevaluation of inventory. Similar, especially to Q2, where we started the quarter with very high prices, and that has been dropped dramatically to the end of the quarter prices.

Speaker #4: Where we see that because of the changes and volatility, especially in our feedstock prices. So having mentioning that, as of July, maybe the volatility and the movement was not that severe comparing to the previous period.

Speaker #4: But it depends. It will depend on that movement, if we see a huge increase to that, or a decrease from the current situation. Based on the forecast that we see, we did not see that the future impact is coming from re-evaluation of inventory.

Speaker #4: Similar, especially to Q2, where we started the quarter with very high prices, and that has dropped dramatically by the end of the quarter.

Fawad Khan: Correct.

Speaker #6: Correct.

Speaker #2: Okay. So one.

Saleh Alghamdi: Okay.

Speaker #4: I hope that answered the question. Is there anything else, Mr. Fawad?

Saud Kamakhi: Does that answer the question? Is there anything else, Mr. Fawad?

Speaker #6: Not on the second one, but first, on the first one, I just need to ask the President: while the company is not considering combining the two shutdowns, is it a technical requirement to go for the ISO, vaccine, and hydrocracking changes first and then follow up with the vacuum distillation?

Fawad Khan: Not on the second one, but on the first one, I just need to ask the President. Why is the company not considering combining the two shutdowns? Is it a technical requirement to go for the isodewaxing and hydrocracking changes first and then follow up with the vacuum distillation unit, or are there some other considerations?

Speaker #6: With the unit, are there some other considerations?

Speaker #2: No, no. You're absolutely spot on. In general, there is a sequence that we need to follow for us to maximize. It's more about capital efficiency in the way we will start up.

Samer Al-Hokail: No, you are absolutely spot on. In general, there is a sequence that we need to follow for us to maximize. It is more about capital efficiency in the way we will start up. You are right, it is a sequence that we need to proceed with. Hydrocracker or isodewax out, there is also others within the technical term of hydrocracker and the isodewax. Then the vacuum comes in afterwards.

Speaker #2: But you're right. It is a sequence that we need to proceed with—hydrocrack or IDOX. There are also others within the technical terms of hydrocracker and ISO DOX.

Speaker #2: Then the vacuum comes in afterward.

Speaker #6: Okay. Sure. Sure. Thank you.

Fawad Khan: Okay, sure. Thank you.

Speaker #4: So, the last question from your side, Mr. Fawad, which I will take. Afterwards, we will have to end the earnings call, but we would be happy to receive any further questions or inquiries afterwards.

Saleh Alghamdi: The last question from your side, Mr. Fawad Khan, which I will take. Afterwards, we will have to end the earning call, but we would be happy to receive any following questions or any inquiries afterwards. You are asking about the crack margin nature or environment towards the end of the year. Typically, Q3 and Q4, Mr. Khan, is times where seasonal demand starts to kick in. In reduction, I mean. It is the holiday season, natural events in multiple locations around the world, which result in lesser demand. As a result, the prices do expect to reduce. All of the forecasts that we are receiving are suggesting such a trend as well. However, given all of the events that happened from the beginning of the year, the end result in this forecast is expected to be still higher, inshallah, than the pre-war prices or the pre-war forecast.

Speaker #4: You were asking about the crack margin nature or environment towards the end of the year. Typically, Q3 and Q4, Mr. Khan, are times when seasonal demand starts to kick in and reduction, I mean.

Speaker #4: So, it's the holiday season. There are natural events or occurrences in multiple locations around the world, which result in lower demand. As a result, we do expect prices to decrease.

Speaker #4: So all of the forecasts that we are receiving are suggesting such a trend as well. However, given all of the events that have happened from the beginning of the year, the end result in this forecast is expected to be still higher, inshallah, than the pre-war prices or the pre-war forecast.

Speaker #4: I hope by this, I have answered your question.

Saleh Alghamdi: I hope by this I answered your question.

Speaker #6: Yeah. Okay. Thank you. Thank you. Thank you, Salah.

Fawad Khan: Yeah. Thank you, Saleh.

Speaker #4: Okay. Thank you, Mr. Fawad Khan. We apologize for the time restrictions. However, to all the gentlemen in the room, we would be very happy to take your questions separately right after this, or over the course of the next week.

Saleh Alghamdi: Okay. Thank you, Mr. Fawad Khan. We apologize for stopping the call after this question due to the restrictions of time. However, all of the gentlemen in the room, we would be very happy to take the questions with you separately right after this one or over the course of the next week. Appreciate your attendance and participation. Looking forward to seeing you soon.

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Q2 2026 Saudi Aramco Base Oil Co - Luberef Earnings Call

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Luberef

Earnings