Oil Refineries Announces First Quarter 2009 Financial Results

HAIFA, Israel, May 18 /PRNewswire-FirstCall/ --

- Consolidated net Income Increases to $75 Million, Compared to $2 Million in First Quarter 2008

- Adjusted Refining Margin USD/bbl 4.4, net of Change in Inventory Values and IFRS Impact, 30% Higher Than USD/bbl 3.4 Reuters' Mediterranean Ural Cracking Margin Benchmark

- Refining Sector Adjusted EBITDA[i] Reached $32 Million, Compared to $2 Million Loss in First Quarter 2008

Oil Refineries Ltd. (TASE: ORL.TA) ("Oil Refineries" or the "Company") announced today its financial results for three month period ending March 31, 2009. Results reported in US Dollars and under International Financial Reporting Standards (IFRS).

    First Quarter 2009 Highlights

    - Adjusted refining margin USD/bbl 4.4, compared to USD/bbl
      2.4 adjusted refining margin for first quarter 2008

    - Adjusted refining margin 30% higher than quarterly average
      Reuters' quoted Mediterranean Ural Cracking Margin of USD/bbl 3.4

    - Adjusted EBITDA for the refining and trading sector totaled
      $32 million, compared to a $2 million loss in first quarter 2008

    - Net profit of $75 million compared to $2 million in the
      first quarter 2008

As accepted by major leading international refiners and marketers of oil and its products, the results below are presented as reported as well as net of the accounting provision, or reversal of provisions, for inventory write offs or mark ups, in addition to buying and selling timing and derivative accounting method under IFRS. This, in order to enable a common base for comparison of the Company's ongoing operations.

First Quarter 2009 Results

Adjusted refining margin for the first quarter totaled USD/bbl 4.4 (USD/ton 32.5), compared to the average Mediterranean Ural Cracking Margin quoted by Reuters for the first quarter 2009 of USD/bbl 3.4 (USD/ton 24.8). Adjusted refining margin for the first quarter 2008 totaled USD/bbl 2.4 (USD/ton 17.7).

During the first quarter of 2009, the price of crude oil rose from approximately $37 per barrel at the end of 2008 to approximately $50.0 per barrel at the end of the first quarter 2009. At the end of the first quarter, refining margins were lower than at the end of 2008, primarily due to the relative increase in oil prices as well as the end of the winter season. The increase in crude oil prices had a substantial impact on the Company's first quarter results. The Company maintains a basic un-hedged inventory of 600,000 tons of crude oil. The change in the value of this inventory does not draw a cash flow impact on the Company, therefore the Company reports its operating results also excluding the impact of the changing oil prices as well as additional impacts such as the change in value of derivatives - this, in order to enable comparable analysis of the Company's ongoing performance.

Production capacity, for the first quarter of 2009, totaled 1,811 thousand tons, compared to a 1,846 thousand tons produced in the first quarter 2008. During the first quarter the Company witnessed an 11% decline in demand in the local market, primarily resulting from the decline in diesel demand, partially offset by increased demand for gasoline. The flexibility of the Company's units, paired with its ability to export to its main regional markets enabled the Company to adapt product quantities, mix and marketing to maximize profits while preserving market share.

Utilization rate for the quarter totaled 88.7%, compared to 91.4% in the first quarter last year.

Consolidated reported EBITDA for the first quarter 2009 totaled $98 million, compared to $34 million in the first quarter 2008.

Refining and Trading sector adjusted EBITDAi reached $32 million in the first quarter 2009, compared to a $2 million adjusted EBITDA loss in the first quarter 2008. During the quarter, the trading sector primarily contributed to supporting the Company's core business, sourcing raw materials with a view to maximizing margins in the refining and aromatic areas.

Consolidated operating profit for the first quarter totaled $80 million, compared to a $16 million in the comparable quarter last year. Refining and Trading sector operating profiti reached $22 million in the first quarter 2009, compared to a $12 million adjusted operating loss in the first quarter 2008.

Operating profit from the Petrochemicals Segment totaled $8 million in the first quarter, compared to $9 million in the first quarter 2008. The Petrochemicals Segment includes the results of the Polymers Section and the Aromatics Section. The Polymers Section generated an operating profit of $2 million in the first quarter, compared to break even in the first quarter 2008. The higher operating profit follows an increase in quantities sold following increased production in the polypropylene plant activated in 2007. Operating profit of the Aromatics Section in the first quarter totaled $6 million, compared to $9 million in the first quarter 2008. In recent weeks there has been an increase in aromatic prices following the sharp increase in demand from South East Asia.

Finance income for the quarter totaled $14 million, compared to a finance expense of $17 million in the first quarter 2008. The finance income primarily resulted from the strengthening of the US dollar against the Israeli shekel and its impact on the company's shekel based loans.

Consolidated net income for the first quarter totaled $75 million, compared to $2 million in the first quarter 2008.

Implementation of Strategic Plan

Periodic Maintenance and Upgrade of Crude Unit 4 - starting June 2009, and for a period of 6 weeks, the company expects to undertake maintenance and upgrading activities on Crude Unit 4. The upgrade, for a total investment of $50 million, is expected to contribute to the units increased utilization while increasing refining flexibility, subsequently contributing to an increase in refining margins already from the third quarter 2009. The company is preparing for the periodic maintenance by increasing inventory and import to meet demand during the period.

Mild Hydrocracker - In May 2009 the Company will complete the first phase in converting the HVGO into a mild hydrocracker. The conversion is expected to contribute to increased flexibility by increasing gasoil production capacity by 1.5% per year.

Full Hydrocracker - Following the strategic plan approved establishment of a 25 kbpd hydrocracker, the Company is in advanced negotiations with equipment suppliers, as well as dealing with finalizing the financing package.

Mr. Yashar Ben Mordechai, CEO of Oil Refineries: "Oil Refineries continues to take advantage of both its strategic location in the Mediterranean Basin as well as its refining units' flexibility in order to maximize refining margins. Under the auspice of its trading sector, the Company continued to identify and take advantage of global trends in both crude oil and aromatics in order to maximize margins and improve profitability. During the quarter the company pre-identified the increasing prices of benzene in North America and a significant increase in aromatic prices following a considerable increase in demand from South East Asia resulting from the regional governments' stimulus programs. This trend enabled the Company to exploit its units' flexibility as well as trading contacts to channel aromatic products to these high value-added markets".

Yashar Ben Mordechai continued and stated that: "ORL continues to upgrade its installations in order to further improve utilization and expand margins, already starting the third quarter of 2009. The operation of the first stage of the mild hydrocracker is expected to come online this month and increase the output of gasoil by 1.5%. Furthermore, refining unit 4 is expected to be upgraded during June-July as part of its periodic maintenance shutdown. Furthermore, we continue to implement the efficiency steps with a view to cutting costs and better positioning the Company's to navigate the fluctuating markets".

Mr. Yossi Rosen, Chairman of the Board of Oil Refineries: "Oil Refineries' management continues to assimilate the business strategy plan, remaining committed to continuing to implement the environmental investment aspects of the strategic plan. During the quarter the Company continued to negotiate with equipment suppliers and formulate a financing package to establish a full hydrocracker facility. This hydrocracker is expected to substantially contribute to driving profitability, adding value and serving as a major growth driver. Once the negotiations are completed and the financing plan put in place, these will be brought before the Board of Directors. Furthermore, during the second quarter of 2009 the Company is expected to activate the first stage of the mild hydrocracker, and initiated the upgrade of refining unit 4, a process which will be completed at the beginning of the third quarter. These two investments are expected to increase refining flexibility, unit utilization rates and refining margins already during the second quarter of 2009".

Conference Call

The Company will also be hosting a conference call later today at 10:00am EDT. On the call, management will present a presentation reviewing the first quarter 2009 highlights and industry trends. The presentation can be downloaded from the Company's website http://www.orl.co.il : Investor Relations > Financial Reports prior to the call. To participate in the conference call, 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: 1-888-723-3164
    UK Dial-in Number: 0-808-101-2717
    Israel Dial-in Number: 03-918-0610
    International Dial-in Number: +972-3-918-0610

at: 10:00am Eastern Daylight Time, 7:00am Pacific Time; 3:00pm UK, 5:00pm Israel

A replay of the call will be available, after the call, on the Company's website at http://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 oil refinery. ORL operates sophisticated and state-of-the-art industrial facilities with refining capacity of 9 million tons of crude oil per year, with 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 is also active in the area of Polymers and Aromatics through its holdings in Carmel Olefins Ltd and Gadiv Petrochemical Industries Ltd. The Company also provides power and heat services to industrial customers in the Haifa Bay, as well as infrastructure services. ORL is traded on the Tel Aviv Stock Exchange under the ticker ORL. For additional information please visit the Company's website: http://www.orl.co.il.

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.

    Oil Refineries Ltd.
    Condensed Consolidated Interim Statements of Financial Position
    In thousand US Dollars

                                              As at
                                              March 31,  March 31,  December
                                                  2009       2008   31, 2008
                                              (Unaudited)           (Audited)
    Current assets
    Cash and cash equivalents                    12,607     41,858     14,840
    Short-term deposit                           63,746          -     25,000
    Derivatives at fair value through profit
    or loss                                      12,820     10,389     15,374
    Investments in other financial assets at
    fair value through profit or loss            95,427    275,386    101,509
    Trade receivables                           236,399    469,185    253,215
    Other receivables                            75,049    121,628     82,642
    Inventory                                   717,370  1,161,466    569,407
    Current tax assets                           39,734     26,004     42,047
    Total current assets                      1,253,152  2,105,916  1,104,034

    Non-current assets
    Investments in equity-accounted investees    35,725     44,552     36,005
    Loan to Haifa Early Pensions Ltd.            71,117     88,833     84,740
    Long term loans and debit balances            2,522      2,039      2,606
    Derivatives at fair value through profit
    or loss                                      26,921     65,055     64,369
    Employee benefit plan assets                  4,619      7,397      5,007
    Property, plant and equipment             1,117,021  1,005,136  1,083,446
    Intangible assets and deferred expenses,
    net                                          24,555     22,140     25,170

    Total non-current assets                  1,282,480  1,235,152  1,301,343

    Total assets                              2,535,632  3,341,068  2,405,377


    Oil Refineries Ltd.
    Condensed Consolidated Interim Statements of Financial Position (cont.)
    In thousand US Dollars

                                                        as at

                                           March 31,  March 31,  December
                                               2009       2008   31, 2008
                                                (Unaudited)      (Audited)
    Current liabilities
    loans and credit                        476,544    282,423    380,339
    Trade payables                          326,382    698,994    270,594
    Other payables                           67,319    101,884 (*) 70,971 (*)

    Derivatives at fair value through profit
    or loss                                   1,384     22,808      1,853
    Provisions                               12,185     27,309     12,949
    Total current liabilities               883,814  1,133,418    736,706

    Non-current liabilities
    Debentures                              649,655    772,287    726,554
    Bank loans                              210,799    437,537    233,749
    Liabilities for finance lease             7,656      8,403      8,448
    Other long-term liabilities               7,306          -      7,394
    Derivatives at fair value through profit
    or loss                                   8,339          -      6,900
    Employee benefits                        54,616     70,417 (*) 67,930 (*)
    Liabilities for deferred taxes           91,209    116,363     65,827
    Total non-current liabilities         1,029,580  1,405,007  1,116,802

    Total liabilities                     1,913,394  2,538,425  1,853,508

    Equity
    Share capital                           472,478    472,478    472,478
    Capital reserves                         20,953     29,783     16,564
    Retained earnings                        58,438    300,382    133,196
    Total equity                            551,869    802,643    622,238

    Total liabilities and capital         2,405,377 3,341,068  2,535,632

    (*) Reclassified
    Oil Refineries Ltd.
    Condensed Consolidated Interim Statements of Comprehensive Income
    In thousand US Dollars

                                              Three months ended  Year ended
                                           March 31,  March 31,     December
                                               2009       2008      31, 2008
                                                (Unaudited)         (Audited)

    Revenue                                 984,358  1,885,696     8,257,458

    Cost of sales, refinery and services
                                            880,977  1,824,174 (*) 8,324,149
    Revaluation of open transactions in
    derivatives on prices of goods and
    margins, net                              1,245     20,487 (*)    (7,465)
    Total cost of sales                     882,222  1,844,661     8,316,684

    Gross profit (loss)                     102,136     41,035       (59,226)

    Selling expenses                          8,773     10,468        40,582
    General and administrative expenses      13,121     14,732        67,061
    Negative goodwill created upon acquisition    -          -       (14,535)

    Operating profit (loss)                  80,242     15,835      (152,334)

    Financing revenue
                                             58,772     31,412 (*)    64,979
    Financing expenses
                                            (44,407)   (48,084)(*)  (126,034)
    Financing income (expenses), net         14,365    (16,672)      (61,055)

    Company's share in profits (losses) of
    associates (net of tax)                   4,591     (5,070)       (3,111)

    Profit (loss) before taxes on income     99,198     (5,907)     (216,500)

    Tax benefits (taxes on income)          (24,607)     8,000       107,292

    Net profit (loss) for the period         74,591      2,093      (109,208)

    Other components of comprehensive income
    Actuarial gains (losses) from a defined
    benefit plan, net                           167          -        (9,318)
    Capital reserve for translation
    differentials                              (254)         -        (1,078)
    Group's share of other comprehensive income
    of an equity accounted investee          (4,799)         -       (10,433)

    Other comprehensive income for the period,
    net of tax                               (4,886)         -       (20,829)

    Comprehensive income for the period      69,705      2,093      (130,037)

    Earnings (loss) per share
    Net basic and diluted earnings (losses)
    per ordinary share (in USD)               0.037      0.001        (0.055)

    (*) Reclassified
    Oil Refineries Ltd.

Selected Pro-forma Consolidated Data from the Report of the Board of Directors on the State of the Corporation's Affairs for the Period

    In millions US Dollars

                         Refining        Trade       Polymers      Aromatics

                                       Three months ended

                        31.3   31.3   31.3   31.3   31.3   31.3   31.3   31.3
                         .09    .08    .09    .08    .09    .08    .09    .08

    Revenue              784  1,562     58     79     84    108     58    137
    Inter-company
    operations            86    186      -      -      -      -      9     12
    Total sales          870  1,748     58     79     84    108     67    149

    Cost of sales        778  1,717     57     77     50     34     (3)    16
    Inter-company
    operations             9     12      -      -     27     68     58    117
    Total cost of
    sales                787  1,729     57     77     77    102     55    133

    Gross profit          83     19      1      2      7      6     12     16
    (loss)

    Selling,
    general and
    administrative
    expenses              11     14      1      -      4      5      6      7
    Inter-company
    operations             -      -      -      -      1      1      -      -
    Operating
    profit                72      5      -      2      2      -      6      9


    (Continued)

                                Adjustments to
                                 consolidated               Consolidated

                               31.3.09      31.3.08     31.3.09    31.3. 08

    Revenue                          -            -         984       1,886
    Inter-company
    operations                     (95)        (198)          -           -
    Total sales                    (95)        (198)        984       1,886

    Cost of sales                    -            -         882       1,844
    Inter-company
    operations                     (94)        (197)          -           -
    Total cost of sales            (94)        (197)        882       1,844

    Gross profit (loss)             (1)          (1)        102          42

    Selling, general and
    administrative
    expenses                         -            -          22          26
    Inter-company
    operations                      (1)          (1)          -           -
    Operating profit                 -            -          80          16

    Financing income
    (expenses)                                               14         (17)
    Share in the profit
    (loss) of investees                                       5          (5)
    Profit (loss) before
    taxes on income                                          99          (6)
    Tax benefits (income
    tax)                                                    (24)          8
    Net profit                                               75           2

Contacts

[i] Adjusted EBITDA relates to the reported EBITDA, net of inventory gains\losses, buy\sell timing differences and IFRS-derivative transaction recording impact.

    Company Contact:
    Igal Salhov,
    Chief Financial Officer,
    Oil Refineries
    Tel. +972-4-878-8152
    ContactIREn@orl.co.il

    Investor Relations Contact:
    Ehud Helft \ Fiona Darmon
    GK Investor Relations
    Tel. (US) +1-646-797-2868 \ (Int.) +972-54-566-3221
    info@gkir.com

SOURCE Oil Refineries Ltd