Adnoc Gas posts 9% increase in first-quarter profit on cost optimisation

Company maintains robust earnings margin despite weak hydrocarbon pricing environment

Adnoc Gas is an integrated processing unit of state oil company Adnoc. Photo: UAE Team Emirates

Adnoc Gas, the integrated gas processing unit of Adnoc, reported a 9 per cent annual increase in its first-quarter net profit as it optimised costs and maintained robust margins despite a sharp slide in hydrocarbon prices.

Net income for the three months to the end of March rose to $1.3 billion, compared with a pro forma adjusted net profit of $1.2 billion recorded during the same period last year, the company said in a statement to the Abu Dhabi Securities Exchange, where its shares are traded.

The company's quarterly revenue of $5.2 billion was lower than the pro forma adjusted $6.2 billion at the end of the first three months of 2022, due to the weak hydrocarbon pricing environment.

However, the company remains “a predictable and resilient margin business underpinned by profitable growth opportunities”, Adnoc Gas said.

The price of Brent, the benchmark for two thirds of the world’s oil, which is also used for gas pricing, declined by about 24 per cent on an annual basis, during the reporting period.

Adnoc Gas maintained its resilience despite a challenging environment and managed to record an earnings before interest, tax, depreciation and amortisation margin of 34 per cent.

“Adnoc Gas has delivered robust financial results during Q1 2023, despite a significant contraction in market prices from the near-all-time highs experienced during 2022,” said its chief executive Ahmed Alebri.

“Our performance during this period demonstrates our resilience and ability to generate attractive returns. We maintained a solid operating margin thanks to our ongoing focus on operational excellence and cost optimisation.”

In its first quarterly earnings statement since listing shares on the ADX in March, Adnoc Gas said it has used the prevailing market conditions to complete several planned maintenance activities that had positioned the company for higher volumes in the second quarter.

Lower prices and volumes during the first quarter were also offset by the lower supply cost of raw gas.

Adnoc Gas has a long-term supply agreement in place that provides it with reliable access to gas from its parent Adnoc's upstream operations.

“The agreement permits Adnoc Gas to share in any price upside and provides downward protection in a lower price environment,” the company said.

Despite tough market conditions, Adnoc Gas aims to continue capitalising on growing global demand for natural gas and remains focused on increasing production capacity and driving operational efficiencies, it said.

The company is growing its export business and delivered the first liquefied natural gas cargo from the Middle East to Germany in February this year.

The company earlier this month also announced the signing of a three-year agreement with TotalEnergies for the export of LNG from 2023 to 2025.

Adnoc Gas said it was making progress on its $14 billion five-year strategic growth plan aimed at increasing the efficiency of operations and production output.

Key projects include efforts to maximise ethane recovery and monetisation across operations, plans to extend the gas pipeline network by more than 500km and the construction of an additional greenfield gas processing complex in the same location as a significant Adnoc upstream reservoir.

The planned complex is expected to add about 1.9 billion standard cubic feet per day of capacity to the processing operations of Adnoc Gas by 2028, the company said.

“Importantly, we continue to execute on the growth strategy communicated during our IPO [initial public offering], underpinned by anticipated upstream capacity expansion and product mix optimisation,” Mr Alebri said.

“We see long-term structural demand growth for natural gas as a critical fuel in the responsible global energy transition and we are ideally positioned to meet both local and international demand, while further decarbonising our operations in line with the UAE’s net-zero 2050 ambition.”

Adnoc Gas has access to 95 per cent of the UAE's natural gas reserves, estimated to be the seventh largest globally. It also supplies more than 60 per cent of the UAE's gas needs.

Adnoc raised about Dh9.1 billion ($2.5 billion) from the sale of a 5 per cent stake in the gas business, making it the largest listing on the ADX.

The listing surpassed that of Borouge, which went public in June 2022 and raised $2 billion.

Adnoc Gas expects to pay a dividend of more than $1.62 billion in the fourth quarter of 2023 for the first half of this fiscal year that ends in December.

It expects to pay a further dividend of more than $1.62 billion in the second quarter of 2024 for the second half of this year.