January 2006 Ashdod Refinery Presentation Company and transaction overview.
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Transcript of January 2006 Ashdod Refinery Presentation Company and transaction overview.
January 2006
Ashdod Refinery Presentation
Company and transaction overview
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Disclaimer
This Document (the “Document”) has been prepared by HSBC Bank plc ("HSBC"). HSBC is acting as financial advisor to the Government Companies Authority of Israel (the "GCA") and no one else in connection with the proposed privatisation of Oil Refineries – Ashdod Limited (“ORA”, or the “Company”).
This Document contains forward-looking statements, sourced exclusively from publicly available information, the GCA or Oil Refineries Limited (“ORL”). These statements are based on certain assumptions, which include a number of known and unknown risks and uncertainties that may lead to the non-occurrence of these statements.
The information contained in this Document has been provided by the GCA, ORL, or from publicly available information and has not been independently verified by HSBC. None of GCA, ORL, ORA, HSBC nor any other person makes any representations or warranties as to the accuracy, completeness or fairness of this Document and, no responsibility or liability is accepted for its accuracy or sufficiency. No representations or warranties are given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, forward-looking statements, estimates, forecasts or targets contained herein. None of the GCA, ORL, ORA nor HSBC undertakes to provide any additional information, to update the information included herein or to remedy any omissions in this Document.
This Document does not constitute an offer or invitation for the sale or purchase of securities or of any of the assets, business or undertaking described herein. Nor does this Document constitute an obligation or undertaking to conduct a future sale of securities or of any of the assets, business or undertaking described herein. This Document is not intended to form the basis of any investment decision to purchase ORA. The selection of a buyer for all of the ORA shares, as a single stake, will be conducted according to the sale procedure of the shares of ORA (the “Sale Procedure”) to be published by the State of Israel.
This Document and its contents are based on the assumption that at the time of the sale of the Shares, the shares of ORL will be owned 100% by the State of Israel. The assumed shareholder structure is subject to completion of arrangements between the current shareholders of ORL (The State of Israel, 74%, and Israel Corporation, 26%).
The information relating to the sale process, structure and timetable is purely indicative and may be altered, modified or cancelled at any time by the GCA. Details of the sale process and sale structure of the Shares, if applicable, are officially announced in the Sale Procedure.
By accepting this Document, the recipient agrees to be bound by the foregoing limitations.
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Notice to Reader
This Document and its contents are based on the assumption that at the time of the sale of the Shares, the shares of ORL will be owned 100% by the State of Israel. The assumed shareholder structure is subject to completion of arrangements between the current shareholders of ORL (The State of Israel, 74%, and Israel Corporation, 26%).
Information in this Overview has been prepared as at 9 January 2006.
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Contents
Transaction background
Overview of the Ashdod Refinery
Overview of Israel’s oil market
Section 1
Section 2
Section 3
Transaction background
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Transaction overview
The State of Israel, through the Government Companies Authority (“GCA”), has initiated the process of privatising Oil Refineries Limited (“ORL”)
The process involves the restructuring of ORL, whereby the Ashdod Refinery will be carved out of ORL, transferred into a newly established subsidiary company and sold in a private sale process (the “Transaction”)
– The Company, called Oil Refinery – Ashdod Limited (“ORA”), was incorporated in January 2006
– The Ashdod Refinery and other associated assets and liabilities are to be transferred into ORA simultaneously with the completion of the Transaction
The GCA is managing the Transaction in collaboration with ORL’s management
HSBC Bank plc is advising the GCA in relation to the sale process
ORL, which will continue to own the Haifa Refinery, will subsequently be privatised through an Initial Public Offering
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ORA transaction overview
ORL situation after ORA sale
ORA is sold to an investor through a private sale process
ORA becomes active independent company upon completion of the Transaction
Competition between ORL and ORA
Industry liberalisation
ORL situation before ORA sale
Israel’s only refining player
Ownership in several petrochemical subsidiaries
Operates in regulated environment
– Price controls
– Vertical integration prohibited
1. This document and its contents are based on the assumption that at the time of the sale of the ORA shares, the shares of ORL will be owned 100% by the State of Israel. The above shareholder structure is subject to completion of arrangements between the current shareholders of ORL (The State of Israel, 74%, and Israel Corporation, 26%).
2. Includes major subsidiaries only 3. Petrochemical subsidiaries4. Lubricants oil subsidiary
New Investor
ORA
Ashdod Refinery
100%
50%50%
State of Israel 1
ORL1
Gadiv3 Carmel Olefins3
Haifa Basic Oil4
100%
Haifa Refinery
100%
50%50%
State of Israel1
Gadiv3 Carmel Olefins3
Haifa Basic Oil4
100%
ORL2
AshdodRefinery
HaifaRefinery
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Overview of ORL refinery operations
Ashdod Refinery
Commissioned in 1973
90,000bbls/d crude refining capacity
7.5 Nelson Complexity Index
Storage capacity of 700,000m3
Private sale process initiated
Haifa Refinery
Commissioned in 1938
180,000bbls/d crude refining capacity
7.2 Nelson Complexity Index
To be privatised through Initial Public Offering
Source: ORL Source: ORL
Source: ORL, industry research Source: ORL, industry research
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ORL financial summary
Turnover 11,513,780 14,072,744 18,862,798 20,187,228Total operating costs 11,643,373 13,821,979 17,767,377 18,519,289EBITDA 166,364 574,130 1,435,702 1,932,866DD&A 295,957 323,365 340,281 264,927EBIT (129,593) 250,765 1,095,421 1,667,939Interest expenses (78,187) 82,896 (176,882) (133,713)Other expenses - (17,400) (2,200) -Profit before tax (207,780) 316,261 916,319 1,534,226Net income (109,498) 220,404 773,292 1,168,300
Current assets 2,731,486 3,719,481 5,122,480 7,065,997Long term investments and loans 74,556 84,590 113,818 116,223Fixed assets 3,649,425 3,598,898 3,623,807 3,879,446Other assets and deferred expenses 180,979 222,072 339,442 445,162Total assets 6,636,446 7,625,041 9,199,547 11,506,828Current liabilities 2,444,364 3,260,647 3,476,412 4,755,417Long term liabilities 2,287,529 2,272,436 2,890,954 2,768,072Total liabilities 4,731,893 5,533,083 6,367,366 7,523,489Shareholders’ equity 1,904,553 2,091,958 2,832,181 3,983,339Total liabilities and shareholders’ equity 6,636,446 7,625,041 9,199,547 11,506,828
P&L (financial year)
Balance sheet (at end of period)
000’s NIS 2002 2003 2004 1st 9 months 20051
Source: ORL(1) Balance sheet as at 30 September 2005
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Changing Israeli regulatory environment
Increased liberalisation
Vertical integration allowed between refiners and retailers
Entry into other businesses such as power generation and water desalination allowed
Industry structure
Removal of price controls at the refinery gate
However, competition monitored to avoid market failurePrice controls
No vertical integration permitted across the downstream value chain
Price controls in effect– For all products at refinery gate
– For gasoline at the pump
Current situation Post-ORA sale
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Legal framework of privatisation and liberalisation
Main documents:
State of Israel’s Resolution on Privatisation of 26 December 2004
National Interest Order
Interested parties should inform themselves of all other relevant laws, regulations and Government resolutions
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Key milestones of ORA sale process
Transaction announcement1
Submission of Expressions of Interest to GCA
2
Initial screening of participants
3
Due diligence and review4
Submission of proposals7
5Final screening of
participants
6Sign-off of Sale and
Purchase Agreement
Selection of preferred offeror
8
Completion and closing9
Overview of the Ashdod Refinery
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Background and history
Ashdod Refinery
Located 4km north of Ashdod city
Considerable population growth in Ashdod in last 30 years
Refinery construction started in 1970
Completed in 1973
Rationale for construction at location:
Services high oil products demand area in the centre of Israel
Benefits from close proximity to an existing crude oil terminal and the coastal power plant, and access to main product pipelines
Provides employment for immigrant population
Enhances Israel’s diversity and security of energy supply
Haifa Refinery
Ashdod Refinery
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Transportation
Ashdod Refinery connected to
– Ashdod, Ashkelon and Eilat ports and terminals
– Haifa Refinery
Own storage capacity of ~700,000 cubic metres
– ~200,000m3 for crude oil and feedstock
– ~500,000m3 for intermediates and products
Other transport infrastructure
– Modern truck loading rack
– Connected to two sea-lines
Product shipments
– Directly by pipeline or truck
– Indirectly by sea
– Pipeline shipping accounts for approximately 60% of product transport
Haifa Refinery
Midstream and downstream infrastructure
Haifa port
Third party terminalAshkelon portand terminal
Eilat port
Ashdod Refinery
IEC sea-lines
PipelineTrucks Ships
National pipeline
grid
Truck load rack forFuel oil
LPGDistillates
Crude oil
Crude oil
Crude oil
Source: ORL(1) The pipeline does not cross the sea-line and is thus represented differently
Import / export of intermediates
& products
Pipeline1
Pipeline
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Plant capacity
Crude 90,000bbls/d
Vacuum 46,000bbls/d
Visbreaking 26,000bbls/d
Fluid catalytic cracking 29,000bbls/d
Catalytic reforming1 12,000bbls/d
Catalytic hydrotreating
– Naphtha 22,000bbls/d
– Kerosene 14,000bbls/d
– Gasoil 17,500bbls/d
– FCC gasoline 18,500bbls/d
Oxygenates 900bbls/d
Source: ORL(1) Semi-regeneration
Source: ORL
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Upgrade and new builds
1984 – Vacuum tower modernised
1987 – Visbreaker overhaul
1990/1992 – Major expansion programme with addition of FCC1 unit, SRU2 and MTBE3 plant
2003– New FCC gasoline HDS4 introduced
– Debottlenecking of naphtha and distillate hydrotreaters– New truck loading terminal– FCC reactor replacement and modernised
2005 - Piped natural gas from offshore field
Upgrades and new builds
(1973-2005)
43MW natural gas-powered co-generation plant
New SRU2 plant
Safety, environmental and reliability projects
Ongoing and future projects
(1) Fluid catalytic cracker(2) Sulphur recovery unit(3) Methyl tertiary butyl ether(4) Hydro desulphurisation
Source: ORL
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Health, safety and environment
Good safety record
All projects meet current Israeli HSE specifications
Capable of producing EURO IV1 compliant products
ISO certification:
– 9000 – quality
– 14000 – environment
– 18000 – safety
Efficient ongoing co-operation with local authorities
Source: ORL(1) European Regulatory Standard for Transportation Fuels effective 2005
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Employees and management
~200 permanent operating staff
– Highly skilled workforce
– High proportion of engineers
~30 additional temporary employees
Limited management staff
– Many functions provided/controlled centrally by ORL
45%
33%
12%
1% 1%3% 5% Management
Security
Operations
Safety, Health & Environment
Maintenance
Human resources
Other
Source: ORL (1) This unit is based in Asdod Refinery, but is under the control of and reports to ORL’s management in Haifa
MaintenanceHealth Safety
Environment QualityProduction
Planning and Supervision of
Maintenance Work
Central & Regional
Maintenance
Instrumentation Electricity and
ControlSafety and Risk
Quality Laboratory
Ecology Plant InspectionProcess
ManagementProcess Units
Products and Loading
Manpower and Organisational
Extension 1
Projects Extension 1
Ashdod Refinery Manager
Security and Administration
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HVGO 500,000
High octane components 49,000
Propane Variable
Product Quantity (tons per annum)
Inter-refinery relationships
Essential feedstocks and blendstocks transferred between the Haifa and Ashdod Refineries
– Approximately 7-10% of throughput of each refinery transferred from one site to the other
– Currently treated as internal transfers
Formal procedures established and agreements drafted between ORL and ORA to maintain these important relationships
– One-year agreements will be effective at the time of the Transaction
– Renewable by mutual consent after 12 months
Product flows from Haifa to Ashdod
Heavy/light naphtha 188,000
Propylene 50,000
Blending components Variable
Product Quantity (tons per annum)
Product flows from Ashdod to Haifa
Source: ORL
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Transitional arrangements
Current situation
Ashdod Refinery managed and operated as an integral part of ORL
Approximately 200 operating staff, with limited management / supporting functions
Ashdod Refinery dependent on ORL at the time of Transaction
Additional employees required to manage Ashdod Refinery as a stand-alone operation
– Commercial and financial functions
– HR, legal, technical, comptroller, IT
Transition period
Effective upon closing of Transaction
Purpose is to transfer all relevant responsibilities and management to ORA’s new owner
ORL will offer specific services to ORA upon request in specific areas of operation, until functions can be operated by new owner
– Transition Period may last between 3 to 12 months depending on the nature of service(s) provided
– Will enable seamless transition of Ashdod Refinery management
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ORA pro-forma balance sheet
Receivables and debit balances 453
Inventory 1,230,494
1,230,947
Long-term investments and loans
Loans 1,359
1,359
Fixed assets
Property, plant and equipment 640,775
Materials and spare parts 34,935
675,710
Other assets and deferred expenses 91,846
Total assets 1,999,862
Assets Liabilities and shareholders’ equity
Source: ORL(1) The pro-forma balance sheet is subject to amendments and will be finalised at a later stage in the sale process
Current maturities of long term loans 123,560
Payables and credit balances 15,636
139,196
Long-term liabilities
Debentures 455,308
Bank loans 219,993
Deferred taxes 148,897
Liabilities for severance pay, net 11,619
835,817
Total liabilities 975,013
Contingent liabilities and commitments
Shareholders’ equity 1,024,849
Total liabilities and shareholders’ equity 1,999,862
Balance sheet1 as of 31 December 2004 (000’s NIS)
Overview of Israel’s oil market
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ORL product flows
Approximately 8.9million tons of crude processed in the 9 months to September 2005
100% of crude oil needs imported, mostly from Russia, FSU1 and the Caspian Sea
Historically imports from Egypt, Norway, West Africa and Mexico also featured
ORL currently imports crude oil for both refineries
Crude oil
9 months to end of September 20052,3
– 9.2 million tons sold
– Export sales account for ~25% of total product sales
Refined products
(1) Former Soviet Union(2) Includes both Ashdod and Haifa refineries product sales(3) Source: ORL(4) YTD 2005
Refined products split – Ashdod Refinery 4
Source: ORL
5%
26%
5%23%
9%
21%
11%
Naphtha
Gasoline
Kerosene
Gasoil
Fuel oil
Other
Diesel
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Israel oil product demand
Stable motor gasoline demand due to increased efficiency of vehicle fleet
Diesel demand growth in line with economic growth
Gasoil growth driven by electricity demand
Gradual decline in heavy fuel oil due to natural gas substitution
Increasing naphtha demand supported by growing petrochemical industry
Modest increases in kerosene demand
LPG use in line with economic growth
Source: ORL estimates(1) Data does not include ORL’s own consumption and military use
Israel oil product domestic consumption (000’s tons)1
Israel oil product imports (000’s tons)
LPG KeroseneGasoline DieselGasoil Fuel Oil Bitumen Petrochemical feedstock
771 667 718 762 767 754
2,337 2,382 2,447 2,535 2,578 2,577
846 701 604 835
3,7373,382 2,961
1,1171,061 1,054 1,136
992 1,097
11,63210,678 10,580 10,975
10,173 10,354
462 431 442 461 472 483
2,123 2,048 2,077 1,994 2,094 2,162
447 594
3,098 2,2532,432193234
288287260239
0
2,000
4,000
6,000
8,000
10,000
12,000
2000A 2001A 2002A 2003A 2004A 2005A
279 412 323
1,526 1,4431,065
2,454 2,451
2,097
2,488
1,757
1,475
15072103824296239448
65662755355230
14
30293129
198
1,078779
1,501
0
500
1,000
1,500
2,000
2,500
3,000
2000A 2001A 2002A 2003A 2004A 2005A
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Current oil market structure
Source: ORL, industry research
Crude import(ORL)
Storage and supply(PEI, EAPC and Pi-Gliloth)
Fuel companies(Paz, Delek, Sonol, Dor Alon)
Fuel Stations Agriculture IndustryPower
StationsTrade
and ServicesAirports
Crude
Refined products
Mid
str
ea
mD
ow
ns
tre
am
Import of distillates(Fuel companies)
Storage and transportation of crude(PEI – Tashan)(EAPC – Katza)
Import, heavy oils and coal(Israel Electric Co.)
ORL
Ashdod Refinery Haifa Refinery
Ports (Bunkering)
UNEX