Oil Refineries Announces Results for Third Quarter & First Nine Months 2011

By Oil Refineries Ltd, PRNE
Sunday, November 20, 2011

HAIFA, Israel, November 21, 2011 -

Adjusted refining margin for the third quarter totaled USD/bbl 3.0, compared with benchmark average of USD/bbl 1.2

———-

  • Adjusted consolidated EBITDA of $33 million for the third quarter of 2011, compared with $50 million in the same period last year.
  • Net loss of $25 million for the third quarter of 2011, compared with a net income of $23 million in the same period last year.
  • Net loss of $9 million for the first nine months of 2011, compared with a net income of $50 million in the same period last year.
  • Adjusted refining margin in the third quarter of 2011 at USD/bbl 3.0, compared with USD/bbl 1.2 average Reuter’s quoted Mediterranean Ural Cracking Margin

Oil Refineries Ltd. (TASE: ORL.TA) (hereinafter the Company,ORL), Israel’s largest integrated refining and petrochemical group, announced today its financial results for the third quarter and first nine months ending September 30, 2011.  Results are reported in US Dollars and under International Financial Reporting Standards (IFRS). Results of operations and comparisons presented in this release reflect the financial restatement correction, as reported on November 18, 2011.

Mr. Pinhas Buchris, CEO of Oil Refineries:  ”Despite the lack of correlation between the changes that occurred in crude oil prices with the changes that occurred in the prices of petroleum products, which are expected to continue into the fourth quarter, ORL continues to maintain a significantly higher refining margin compared with the benchmark margin. Our ability to keep higher refining margins as compared with other refineries in the region, is a testament to ORL’s capability to determine the optimal configuration of quantity refined and product slate, across all of its production lines.  The Company is showing stable margins in aromatics, along with record production stemming from operational improvements made ??as a result of recent renovations. The establishment of the hydrocracker is continuing on schedule with the commissioning of this facility, designated to produce cleaner fuels expected by the end of the second quarter of 2012.”

Mr. Yossi Rosen, Chairman of the Board of Oil Refineries: “The continued volatility in the markets, along with the trend of falling oil prices in recent months resulting from the publication of weak macroeconomic data from the U.S. and Europe, and the drop in oil demand from OECD countries, led to a decrease, compared with the same period last year, in quantity refined in order to maintain optimization in the Company. ORL has so far invested about $ 283 million, as part of its strategic plan, for the establishment of the hydrocracker. Once it starts commissioning, the facility is expected to contribute significantly to improving our refining margins, bettering our facilities’ capabilities and flexibility, and reducing the impact of the oil price volatility on the Company. The transition to natural gas significantly decreased our refinery emissions demonstrating that our transition was the correct course of action from an environmental perspective.”

Note: The start of 2011 saw a wave of political instability and riots in various Middle Eastern countries, including Libya, which is one of the world’s major oil producers. This unrest, along with the earthquake in Japan in March, caused global market unrest and world crude oil prices to reach a record high of over $125 a barrel in April of this year.  From May until the publication of this report, the market was characterized by significant fluctuations along with falling oil prices due to weak macroeconomic data from the U.S. and Europe, declining oil demand in OECD countries, as well as the strengthening dollar.  In June, the decline continued, following the U.S. decision to release about 60 million barrels of crude oil and petroleum products from its strategic stock.  At the same time, the end of the period was characterized by a lack of financial stability of banks and countries in the Eurozone. Brent crude oil traded at the end of the reporting period at a cost of about $105 a barrel.  Lack of correlation between changes in crude oil prices with changes in the prices of petroleum products during the reporting period resulted in a severe volatility of refining margins.  The average Reuters quoted Mediterranean Ural Cracking margin during the nine month reporting period ranged from about USD/bbl (4) to USD/bbl 7.0 a barrel and averaged USD/bbl 1.1 in this period. In the same period last year, the average Reuters quoted Mediterranean Ural Cracking margin totaled USD/bbl 2.9.

FIRST NINE MONTHS 2011 ($ millions)

                          Operating Profit              EBITDA
                         Q1-3/11  Q1-3/10       Q1-3/11         Q1-3/10
    Refining Segment
    Adjusted              (29)       24            8              55
    Petrochemicals
    Segment - Polymers     40        57            75             91
    Petrochemicals
    Segment - Aromatics    35        20            40             24
    Petrochemicals
    Segment - Lube-Oils    10        8             11              9
    Trade Segment         (19)      (13)          (19)            (3)
    Adjustments            (1)      (5)            -              (5)
    Total adjusted
    consolidated           36        91           115             161

Quantity refined declined in the first nine months of 2011 by about 424 thousand tons, compared with the same period last year. The utilization rate during the reporting period stood at 87.8%, compared with a higher rate in the same period last year. This can be attributed to the decision to optimize production capacity taking current market conditions into consideration.

Adjusted refining margin in this reporting period of 2011 totaled USD/bbl 2.7, compared with the average Mediterranean Ural Cracking Margin quoted by Reuters of USD/bbl 1.1.  Adjusted refining margin for the first nine months of 2010 totaled USD/bbl 3.1, compared with the average margin of USD/bbl 2.9.

It should be noted that there are differences between the Company’s refining margin and the benchmark margin, including the crude oil composition (with the Company also refining crude oil types that are not Urals), the composition and quality of products produced by ORL, and the difference caused by the fact that the quoted margin takes into account same day buying and selling, while in fact there is a time gap in between the purchase date of raw materials and the sale date of the finished products. So while comparing the Benchmark margin with the Company’s margin may provide some understanding about the development of the Company’s margins, it does not constitute an accurate measure in evaluate the Company’s margins in the short term.

Adjusted consolidated EBITDA in this reporting period totaled $115 million, compared with $161 million in the same period last year.

Financing expenses in the first nine months of 2011 totaled $69 million, compared with $28 million in the same period last year.  The rise is attributed to fluctuations in hedging activities and an increase in bond and interest rates.

Consolidated net loss for the first nine months of 2011 totaled $9 million, compared with a net income of $50 million in the same period last year.

THIRD QUARTER 2011 ($ millions)

                         Operating Profit              EBITDA
                         Q3/11    Q3/10         Q3/11           Q3/10
    Refining Segment
    Adjusted              (3)      (3)            9               8
    Petrochemicals
    Segment - Polymers    (9)       27            3              37
    Petrochemicals
    Segment - Aromatics    23       7             27              8
    Petrochemicals
    Segment - Lube-Oils    3        2             4               3
    Trade Segment         (7)      (4)           (7)             (4)
    Adjustments           (1)      (2)           (2)             (2)
    Total adjusted
    consolidated           6        27            33             50

Adjusted refining margin in Q3 2011 totaled USD/bbl 3.0, compared with the average Mediterranean Ural Cracking Margin quoted by Reuters of USD/bbl 1.2.  Adjusted refining margin for the third quarter of 2010 totaled USD/bbl 1.7, similar to the average margin.

Adjusted consolidated EBITDA in Q3 2011 totaled $33 million, compared with $50 million in the same quarter last year.

Financing expenses in the third quarter of 2011 totaled $21 million, compared with $20 million in the same quarter last year.  

Consolidated net loss for the third quarter of 2011 totaled $25 million, compared with an income of $23 million in the same quarter last year.

Key Developments in the First Nine Months 2011

  • As part of the strategic plan regarding the establishment of the hydrocracker, the Company has executed up to the end of the reporting period: an investment amounting to about $283 million (of a total investment of $500 million) and took on additional commitments for its implementation, totaling approximately $127 million. The project’s progress is in line with the planned schedule with its commissioning expected towards the end of the second quarter of 2012.

  • In addition, and in order to leverage potential synergies, the Company decided to invest about $45 million for the production of polymers using existing raw materials already available in the refinery.  The expected return of this investment is estimated at $ 30 million per year (as of publication of this report, the Company has started the process of its commencement).  Likewise, the Company decided also to invest $60 million for expanding the production capacity of propylene, which is expected to yield a return of about $50 million a year.

ADDITIONAL ANNOUNCEMENTS

The Company has made an amendment to its Transaction Report and Extraordinary General Meeting, from November 18, 2011.  A convenience translation of this amendment will be available on the Company’s website later this week.

Conference Call

The Company will also be hosting a conference call today, November 21, 2011, at 14:00 UK time, 9:00 ET, 6:00 PST and 16:00 Israeli Time.

On the call, management will present a presentation reviewing the third quarter and first nine months 2011 highlights and industry trends. The presentation is available for download from the Company’s website www.orl.co.il: Investor Relations > Financial Reports.

To participate, please call one of the following teleconferencing numbers.  Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Numbers:                        1-888-668-9141

UK Dial-in Number:                         0-800-917-5108

Israel Dial-in Number:                     03-918-0609

International Dial-in Number:              +972-3-918-0609

at: 14:00 UK Time, 9:00 ET, 6:00 PT, 16:00 Israel time.  A replay of the call will be available after the call on the Company’s website at www.orl.co.il.

About Oil Refineries Ltd.

Oil Refineries Ltd. (ORL), located in the bay area of the city of Haifa, operates Israel’s largest integrated refining and petrochemical group. It is one of the leading refineries in the Eastern Mediterranean area and integrates, on-site, petrochemical businesses. ORL runs sophisticated and state-of-the-art industrial facilities with a refining capacity of 9.8 million tons of crude oil per year and a Nelson Complexity Index of 7.4, providing a variety of quality products used in industrial operation, transportation, private consumption, agriculture and infrastructure. The Company’s petrochemical sector produces Polymers (through its ownership of Carmel Olefins Ltd), Aromatics (through its ownership of Gadiv Petrochemical Industries Ltd), and Lube-Oils (through its ownership of Haifa Basic Oils Ltd). The Company’s shares are listed on the Tel Aviv Stock Exchange under the ticker ORL. For additional information please visit www.orl.co.il.

ORL is controlled by the Israel Corporation Ltd. and Israel Petrochemical Enterprises Ltd., both public companies whose shares are traded on the Tel Aviv Stock Exchange.

The above noted in this release includes forward-looking statements based on Company data, as well as Company plans and estimations based on this data. The activity, results and other data may be substantially different in reality given uncertainty and various risks, including those discussed under risk factors in the Company’s financial statements and Director’s reports.

Condensed Consolidated Interim Statement of Financial Position

USD thousands

                                              September  September December
                                              30, 2011   30, 2010  31, 2010
                                              (Unaudited)          (Audited)
    Current assets
    Cash and cash equivalents                 10,528     31,342    6,704
    Deposits                                  20,044     84,846    126,991
    Trade receivables                         627,340    501,637   366,227
    Other receivables                         122,780    73,518    98,241
    Financial derivatives                     77,498     23,316    27,577
    Investments in financial assets at fair
    value through comprehensive income        104,491    102,957   106,895
    Inventory                                 1,176,343  1,190,655 1,200,922
    Current tax assets                        1,553      807       1,819
    Total current assets                      2,140,577  2,009,078 1,935,376

    Non-current assets
    Investments in equity-accounted investees 9,188      16,580    16,455
    Financial assets at fair value through
    other comprehensive income                7,300      11,165    17,701
    Loan to Haifa Early Pensions Ltd.         70,640     74,142    77,014
    Long term loans and debit balances        1,534      3,701     3,501
    Financial derivatives                     172,768    172,736   192,990
    Employee benefit plan assets              6,297      10,536    7,922
    Deferred tax assets                       327        --        688
    Property, plant and equipment             2,215,777  1,936,241 2,030,414
    Deferred costs                            12,075     9,154     12,535
    Intangible assets                         69,924     82,204    78,950

    Total non-current assets                  2,565,830  2,316,459 2,438,170

    Total assets                              4,706,407  4,325,537 4,373,546

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Financial Position

USD thousands

                                       September    September   December
                                       30, 2011     30, 2010    31, 2010
                                       (Unaudited)              (Audited)
    Current liabilities
    Loans and borrowings               993,206      760,178     773,792
    Trade payables                     734,303      673,699     619,037
    Other payables                     89,823       118,225     102,099
    Current tax liabilities            23,159       23,828      24,278
    Financial derivatives              42,009       56,155      85,443
    Provisions                         9,633        11,507      9,231
    Total current liabilities          1,892,133    1,643,592   1,613,880

    Non-current liabilities
    Bank loans                         784,584      501,807     624,468
    Debentures                         780,632      869,816     872,421
    Liabilities for finance lease      9,335        9,187       9,491
    Financial derivatives              15,494       12,655      5,195
    Employee benefits                  70,845       59,201      70,537
    Deferred tax liabilities           63,648       127,360     53,808
    Total non-current liabilities      1,724,538    1,580,026   1,635,920

    Total liabilities                  3,616,671    3,223,618   3,249,800

    Capital
    Share capital                      586,390      586,390     586,390
    Share premium                      100,242      100,242     100,242
    Reserves                           88,835       41,103      45,516
    Retained earnings                  314,269      374,184     391,598
    Total capital                      1,089,736    1,101,919   1,123,746

    Total liabilities and capital      4,706,407    4,325,537   4,373,546

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Comprehensive Income

USD thousands

                                                                    Year
                        Nine months ended     Three months ended    ended
                        September   September September   September December
                        30, 2011    30, 2010  30, 2011    30, 2010  31, 2010
                        (Unaudited)           (Unaudited)           (Audited)
    Revenue             7,456,394   5,295,924 2,745,717   1,713,114 6,791,809

    Cost of sales,
    refining and
    services            7,226,447   5,101,206 2,625,760   1,609,507 6,561,599
    Revaluation of open
    positions in
    derivatives on
    prices of goods and
    margins, net        30,311      859       79,050      36,627    32,052
    Total cost of sales 7,256,758   5,103,065 2,704,810   1,646,134 6,593,651

    Gross profit        199,636     192,859   40,907      66,980    198,158

    Selling and
    marketing expenses  77,959      80,073    27,673      24,078    99,282
    General and
    administrative
    expenses            39,384      43,331    8,489       10,048    57,955
    Operating profit    82,293      69,455    4,745       32,854    40,921

    Financing income    20,844      87,632    (14,460)    28,355    89,330
    Financing expenses  (89,756)    (115,894) (6,801)     (48,178)  (140,439)
    Financing expenses,
    net                 (68,912)    (28,262)  (21,261)    (19,823)  (51,109)

    Company's share in
    earnings (losses) of
    equity accounted
    investees, net of
    tax                 (8,404)     600       (4,866)     258       476

    Profit (loss) before
    taxes on income     4,977       41,793    (21,382)    13,289    (9,712)

    Tax benefits (income
    tax)                (14,450)    8,030     (3,262)  (*)9,804     82,781

    Profit (loss) for
    the period          (9,473)     49,823    (24,644)    23,093    73,069

    Items of other
    comprehensive income
    (loss)
    Actuarial gains
    (losses) from a
    defined benefit
    plan, net of tax    (403)       108       (485)       212       (5,724)
    Foreign currency
    translation
    differences for
    foreign operations   336         (176)     (483)       642       (309)
    Effective share of
    the change in fair
    value of cash flow
    hedging, net of tax (2,973)     4,995     (1,992)     4,995     3,529
    Change in fair value
    of financial assets
    at fair value
    through other
    comprehensive
    income, net of tax  (9,153)     210       (4,390)     1,669     6,143
    Net change in fair
    value of debentures
    designated at fair
    value through
    comprehensive
    income, attributable
    to change in credit
    risk, net of tax    34,979      --        33,003      --        --

    Other comprehensive
    income for the
    period, net of tax  22,786      5,137     25,653      7,518     3,639

    Comprehensive income
    for the period      13,313      54,960    1,009       30,611    76,708

    Earnings (loss) per
    share (USD)
    Basic and diluted
    earnings (loss) per
    ordinary share          (0.004) 0.020 (*)     (0.010) 0.009 (*) 0.030

The accompanying notes are an integral part of the condensed consolidated interim financial statements

Results of the Group’s operations

The following table presents selected information of the Group for the nine months period (USD millions)

                                             Petrochemicals
                   Refining      Trade       Polymers    Aromatics       Oils
                   Nine months ended September 30
                   2011  2010    2011  2010  2011  2010  2011  2010  20112010
    Revenue        5,739 3,951   166   130   930   772   538   383   83    59
    Inter-company
    operations     1,035 735     --    --    --    --    45    31    --    --
    Total sales    6,774 4,686   166   130   930   772   583   414   83    59

    Cost of sales  6,650 4,576   180   139   373   323   18    28    23    17
    Inter-company
    operations     44    31      1     --    479   351   507   343   47    33
    Total cost of
    sales          6,694 4,607   181   139   852   674   525   371   70    50

    Gross profit
    (loss)         80    79      (15)  (9)   78    98    58    43    13     9

    Selling,
    general and
    administrative
    expenses       43    48      4     4     38    39    22    22    3      1
    Inter-company
    operations     --    --      --    --    --    2     1     1     --    --
                   43    48      4     4     38    41    23    23    3      1

    Operating
    profit (loss)
    for segments   37    31      (19)  (13)  40    57    35    20    10     8
    Amortization
    of excess cost
    arising on
    acquisition of
    investees
    Operating
    profit
    Financing
    expenses, net
    Company's
    share in
    earnings
    (losses) of
    equity
    accounted
    investees, net
    of tax
    Profit before
    income tax
    Tax benefits
    (income tax)
    Profit (loss)
    for the period

Table continues…


                                          Adjustments to
                                          consolidated         Consolidated
                                          Nine months ended September 30
                                          2011     2010   2011        2010
    Revenue                               --       --     7,456       5,295
    Inter-company operations              (1,080)  (766)  --          --
    Total sales                           (1,080)  (766)  7,456       5,295

    Cost of sales                         --       --     7,244       5,083
    Inter-company operations              (1,078)  (758)  --          --
    Total cost of sales                   (1,078)  (758)  7,244       5,083

    Gross profit (loss)                   (2)      (8)    212         212

    Selling, general and administrative
    expenses                              --       --     110         114
    Inter-company operations              (1)      (3)    --          --
                                          (1)      (3)    110         114

    Operating profit (loss) for segments  (1)      (5)    102         98
    Amortization of excess cost arising
    on acquisition of investees                           (20)        (29)
    Operating profit                                      82          69
    Financing expenses, net                               (69)        (28)
    Company's share in earnings (losses)
    of equity accounted investees, net of
    tax                                                   (8)         1
    Profit before income tax                              5           42
    Tax benefits (income tax)                             (14)        8
    Profit (loss) for the period                          (9)         50

The following table presents selected information of the Group for the three months period (USD millions)

                                             Petrochemicals
                   Refining      Trade       Polymers    Aromatics       Oils
                   Three months ended September 30
                   2011  2010    2011  2010  2011  2010  2011  2010  20112010
    Revenue        2,153 1,306   37    34    315   237   210   116   30    20
    Inter-company
    operations     372   248     --    --    --    --    23    8     --    --
    Total sales    2,525 1,554   37    34    315   237   233   124   30    20

    Cost of sales  2,487 1,522   43    38    159   72    12    4     --     5
    Inter-company
    operations     24    8       --    --    153   127   190   106   26    12
    Total cost of
    sales          2,511 1,530   43    38    312   199   202   110   26    17

    Gross profit
    (loss)         14    24      (6)   (4)   3     38    31    14    4      3

    Selling,
    general and
    administrative
    expenses       11    14      1     --    12    10    8     7     1      1
    Inter-company
    operations     --    --      --    --    --    1     --    --    --    --
                   11    14      1     --    12    11    8     7     1      1

    Operating
    profit (loss)
    for segments   3     10      (7)   (4)   (9)   27    23    7     3      2
    Amortization
    of excess cost
    arising on
    acquisition of
    investees
    Operating
    profit
    Financing
    expenses, net
    Company's share in
    earnings (losses)
    of equity accounted
    investees, net of
    tax
    Profit (loss)
    before taxes
    on income
    Tax benefits
    (income tax)
    Profit (loss)
    for the period

Table continues…


                           Adjustments to
                           consolidated     Consolidated
                           Three months ended September 30
                           2011  2010  2011      2010
    Revenue                --    --    2,745     1,713
    Inter-company
    operations             (395) (256) --        --
    Total sales            (395) (256) 2,745     1,713

    Cost of sales          --    --    2,701     1,641
    Inter-company
    operations             (393) (253) --        --
    Total cost of sales    (393) (253) 2,701     1,641

    Gross profit (loss)    (2)   (3)   44        72

    Selling, general and
    administrative
    expenses               --    --    33        32
    Inter-company
    operations             --    (1)   --        --
                           --    (1)   33        32

    Operating profit
    (loss) for segments    (2)   (2)   11        40
    Amortization of excess
    cost arising on
    acquisition of
    investees                          (7)       (7)
    Operating profit                   4         33
    Financing expenses,
    net                                (21)      (20)
    Company's share in
    earnings (losses) of
    equity accounted
    investees, net of tax              (5)       --
    Profit (loss) before
    taxes on income                    (22)      13
    Tax benefits (income
    tax)                               (3)       10
    Profit (loss) for the
    period                             (25)      23

 

Company Contact:
Rony Solonicof
Chief Economist and Head of Investor Relations
Tel. 972-4-878-8152
Contact IREn@orl.co.il

Investor Relations Contact:
Ehud Helft / Porat Saar
CCG Israel
Tel. (US) +1-646-233-2161 / (Int.) +972-52-776-3687
info@ccgisrael.com

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