Summary of Shouhua Gas Conference Call Company Overview - **Company**: Shouhua Gas - **Industry**: Natural Gas Production Key Points and Arguments 2025 Performance and 2026 Outlook - Shouhua Gas significantly improved its performance in 2025, reversing the substantial losses of 2024, with natural gas production achieving a historic breakthrough of over 900 million cubic meters, and a daily output exceeding 3 million cubic meters for the first time since its establishment 17 years ago [2][3] - The company anticipates annual production capacity to exceed 1 billion cubic meters in 2026, with a target of around 1.2 billion cubic meters [2][3] Future Production Goals - The company aims for natural gas production to reach 1.4 to 1.5 billion cubic meters by 2027, with long-term goals of 2 to 2.5 billion cubic meters by 2031-2033, contingent on capital expenditure levels [2][4][5] - Resource reserves include 88.7 billion cubic meters of coalbed methane and 120 billion cubic meters of tight gas, indicating substantial growth potential [2][5] Cost Management and Efficiency - The company plans to reduce natural gas production costs by approximately 10% in the new accounting year, targeting costs between 1.2 to 1.0 yuan per cubic meter [2][12] - Cost reductions are attributed to technological advancements, contract optimization, and increased production leading to a dilution effect [2][12] Impact of Tax Policies - The cancellation of the coalbed methane VAT rebate has no significant impact on the company due to high unclaimed VAT credits from previous capital expenditures [2][13] Market Conditions and Pricing - Domestic natural gas prices are expected to remain stable, supported by the import LNG landing price, with limited downside potential [2][14][15] - The company maintains a competitive edge with its wellhead prices compared to the expected costs in eastern coastal regions [14][15] Supply Chain and Partnerships - The primary suppliers include PetroChina Coalbed Methane Company and drilling companies, with revenues already accounting for the share owed to PetroChina [2][10][11] Asset Impairment and Financial Health - The significant losses in 2023 and 2024 were primarily due to asset impairments, including goodwill and contract rights, linked to declining natural gas prices [2][17] - The company expects a stabilization in natural gas prices in 2025, which should reduce future impairment risks [4][17] Future Expansion and Strategic Direction - Shouhua Gas is exploring external growth opportunities in the natural gas and other resource sectors, having previously abandoned an alumina project due to high costs [2][16] - There are potential plans for equity changes to increase control, depending on shareholder agreements [4][18] Production Challenges and Historical Context - The decline in natural gas production from 2019 to 2022 was influenced by risk control measures and underperformance in tight gas development [2][19] - Recent breakthroughs in deep coalbed gas production have led to a doubling of output from late 2024 to early 2025 [19] Long-term Outlook - The company is optimistic about its long-term development, anticipating a combination of production increases, cost reductions, and potential equity enhancements to drive profitability [2][20]

Group 1: Industry Overview - The Middle East is accelerating its natural gas development, with Saudi Arabia and Qatar expected to increase production by 60% and 44% respectively by 2030, driven by the development of large gas fields like Jafurah and North Field [1] - 80% of the natural gas supply in the Middle East is for regional economic demand, while 20% is for net exports, predominantly in the form of liquefied natural gas (LNG) from Qatar [1] - Natural gas is crucial for electricity generation in the region, accounting for 45% of domestic demand, with the remaining used for industrial and hydrogen applications [1] Group 2: Economic Growth and Demand - Major Middle Eastern countries are pursuing large-scale economic growth plans, with expected economic growth rates above 3% in the coming years, which will increase electricity supply demand and subsequently natural gas demand [1] - The Asia-Pacific region is the primary export market for Middle Eastern natural gas, with projected annual demand reaching 1186 billion cubic meters (bcm) by 2030, a 32% increase from 2023, driven by significant growth in China and India [1] Group 3: Equipment and EPC Market - The natural gas industry encompasses the entire process from extraction to application, requiring various equipment such as compressors, valves, and turbines [2] - The Middle East and North Africa's oil and gas projects are projected to reach $101.2 billion in contracts in 2024, a 112% increase from 2022, with Chinese companies expected to see a 116.7% year-on-year increase in project contracts [2] - The demand for natural gas compressors is expected to remain high due to the expansion of natural gas extraction in the region, with specific types of compressors needed for different stages of the process [2] Group 4: Investment Recommendations - Companies with established channel layouts and those positioned in capacity-constrained segments are likely to benefit significantly from the ongoing expansion in Middle Eastern natural gas production [3] - Recommended companies to watch include Jereh Group, Zhongtai Co., and Yingliu Co. [3]