This article first appeared on GuruFocus .
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Net Income:SAR258 million, a 16% increase year-on-year.
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Sales Volume Decline:12% decrease in base oil sales volume.
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Base Oil Crack Margins:Temporary compression of approximately 14% due to increased feedstock prices.
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Byproduct Margins:Significant improvement, especially in diesel.
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Free Cash Flow:Experienced compression due to higher capital expenditures and working capital buildup.
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Return on Average Capital Employed:23%.
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Negative Gearing:12%.
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OpEx Increase:Higher depreciation of approximately SAR11 million.
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Cash Balance:Ended the period with SAR1,397 million.
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Capital Expenditures:SAR153 million, with 50% growth-related.
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Full Year Sales Target:Revised to approximately 1.15 million metric tons.
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Release Date: May 11, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Saudi Aramco Base Oil Co - Luberef ( SAU:2223 ) achieved a net income of SAR258 million in Q1 2026, marking a 16% increase year-on-year despite a 12% decline in sales volumes.
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The company maintained a total recordable incident rate of 0 and surpassed 43.9 million man hours without a lost time incident, highlighting their strong safety culture.
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Luberef successfully navigated geopolitical challenges by leveraging contracts of affreightment, which reduced freight costs by approximately 25% compared to the previous year.
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The company is progressing well with strategic initiatives, including the feedstock supply agreement for the Jeddah facility and the Group II slating program, both nearing final stages.
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Luberef's Growth II projects are on track, with major equipment deliveries scheduled and construction activities advancing, aiming for completion in the second half of 2026.
Negative Points
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Base oil crack margins experienced a temporary compression of approximately 14% due to rising feedstock costs, impacting overall margins.
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Free cash flow was compressed during the quarter, driven by higher capital expenditures and working capital buildup.
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The company revised its full-year sales target down to 1.15 million metric tons from 1.25 million metric tons due to geopolitical and market dynamics.
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There was a 12% decline in base oil sales volume, attributed to the time taken to stabilize operations post-turnaround.
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Despite strong byproduct margins, the company faces challenges from evolving geopolitical conditions that could impact future performance.
Q & A Highlights
Q: Given that base oil crack margins were weaker than expected this quarter, was this due to a lag in base oil prices versus feedstock costs? How do you see this evolving in Q2? A: Yes, the lower crack margin was due to a lag between the increase in feedstock costs and base oil prices. We expect improvement in crack margins in the upcoming quarter as base oil prices catch up. Byproduct margins, especially diesel, positively impacted Q1 results, with byproducts contributing around $70 per metric ton.
Q: Why were volumes lower this quarter despite no shutdowns? Have your market areas changed since the crisis began? A: The lower volumes were due to the time taken to stabilize production after a major turnaround in December. We have expanded our market reach to include India, Pakistan, and Africa, utilizing storage facilities globally. There has been no pushback from clients on current high base oil prices.
Q: Why was the full-year sales target revised from 1.25 million to 1.15 million metric tons? A: The revision was primarily due to the first quarter's performance. We do not anticipate further changes in production for the rest of the year.
Q: How has the geopolitical situation affected your logistics and operations? A: We have increased local sales and utilized storage in strategic locations to mitigate disruptions. Our long-term shipping agreements have shielded us from high freight costs, maintaining operational agility.
Q: How do you manage pricing for exports given the current market volatility? A: Our export prices are based on pre-agreed indices with customers, providing stability despite market fluctuations. We maintain flexibility in pricing to ensure competitiveness and customer satisfaction.
Q: What is the composition of your byproducts, and how did they impact Q1 results? A: Byproducts like asphalt and marine heavy fuel oil make up 50-60% of the byproduct pool, while diesel and naphtha account for 15-20%. These byproducts significantly contributed to Q1 performance due to favorable market conditions.
Q: Are you facing any demand destruction due to high prices, and will you need to offer discounts? A: We do not foresee demand destruction or the need for discounts. Our pricing strategy is balanced to maintain customer relationships and market stability.
Q: Will the planned shutdown in August proceed as scheduled, or could it be delayed to benefit from current high margins? A: The shutdown is currently planned for August, but we remain flexible and will adjust based on market conditions and strategic priorities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
