Oil Refineries Announces Results for Fourth Quarter and Full Year 2010

2010 Net Income Totals $77 Million; 2010 Adjusted Consolidated EBITDA Totals $170 Million

Mar 21, 2011, 04:29 ET from Oil Refineries Ltd

HAIFA, Israel, March 21, 2011 /PRNewswire-FirstCall/ --

- Adjusted consolidated EBITDA of $170 million in 2010, compared with $188 million in 2009

- Adjusted consolidated EBITDA in Petrochemical segment- Polymers (CAOL) of $109 million in 2010, compared with $36 million in 2009[1]

- Adjusted refining margin USD/bbl 3.2, compared to USD/bbl 2.9 average Reuter's quoted Mediterranean Ural Cracking Margin

- Facility shutdown in fourth quarter resulted in a relatively lower refining quantity of 7,603 thousand tons and a utilization rate of 78.2% for 2010, compared with 7,534 thousand tons and a utilization rate of 81.8% in 2009.

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 fourth quarter and full year ending December 31, 2010. Results are reported in US Dollars and under International Financial Reporting Standards (IFRS).

- Consolidated net income totaled $24 million for the fourth quarter 2010, compared with $182 million in the same quarter in the previous year.

- EBITDA in the Petrochemicals (CAOL Polymers) segment totaled $18 million for the fourth quarter 2010, compared with $8 million in the same quarter in the previous year. In 2009, 50% of CAOL's results were consolidated.

- Adjusted EBITDA for the Refining & Trade segments totaled $29 million in 2010, compared with $120 million in 2009. For the fourth quarter 2010 EBITDA totaled a loss of $15 million, compared with a profit of $25 million in the same quarter in the previous year.

Note: Volatility in crude oil prices continued during the reporting period, with April seeing the highest prices since the collapse at the end of 2008, during which Brent crude oil traded at a price of about $85 a barrel.

The rise in oil prices was supported by the expectation that growth would return as well strong demand for crude oil futures contracts, which are also used as an investment instrument. In May 2010, with the development of the debt crisis in the Euro-Zone and decline in the financial markets, crude oil prices were sharply pushed down to a level of $68/barrel. Prices rose again towards the end of 2010, reaching about $92/barrel. Meanwhile, the global demand for crude oil has increased reaching 87 million barrels a day, with an increase in demand also coming from developed countries (OECD) for the first time since 2004.

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

    YEAR END RESULTS 2010 ($ millions)

                         Operating Profit              EBITDA
                          2010     2009          2010            2009
    Refining Segment        6       82            47             127
    Adjusted
    Trade Segment         (18)      (7)          (18)             (7)
    Petrochemicals         65        8           109              36
    Segment - Polymers
    Petrochemicals         23       27            27              34
    Segment - Aromatics
    Petrochemicals          7        -             8               -
    Segment - Lube-Oils

The utilization rate in 2010 was 78.2% compared with 81.8% in 2009. Quantity refined totaled 7,603 thousand tons, compared with 7,534 thousand tons in 2009. Quantity refined for the fourth quarter totaled 800 thousand tons with a utilization rate of 32.7%, compared with 1,998 thousand tons and a utilization rate of 81.6% in the same quarter last year. The Company shut down some its facilities in the fourth quarter of 2010 in order to carry out periodic maintenance and this impacted the Company's operations and profitability during this reporting period. The Company went back to full production during the first quarter of 2011.

Adjusted refining margin for 2010 totaled USD/bbl 3.2, compared with the average Mediterranean Ural Cracking Margin quoted by Reuters of USD/bbl 2.9. Adjusted refining margin for 2009 totaled USD/bbl 4.9, compared with the average margin of USD/bbl 1.9.

Adjusted consolidated EBITDA for 2010 totaled $170 million, compared with $188 million in 2009.

Financing expenses totaled $51 million, compared with $26 million in 2009.

Consolidated net income for 2010 was $77 million, compared with $349 million in 2009.

Key Developments in 2010

- In June 2010, the company activated the second and final stage of upgrading the HVGO desulphurization plant. Activation of Stage 2 is expected to increase the Company's production of diesel fuel by an additional 3-4%.

- The Company also worked in the past year to create synergies through its merger with CAOL by consolidating the headquarters and operational activities of CAOL with ORL and is pursuing a rapid achievement of the merger benefits between the companies. The Company estimates that leveraging the integration and synergy of the Company's various segments results in greater total margins and reduces the overall volatility impacting the Company's profitability over time, particularly as the Company's subsidiaries do not necessarily overlap. Likewise, the single management team creates efficiencies by optimizing operations and reducing costs.

- 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. 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.

- Construction began this year on the hydrocracker and is going as planned, according to the established timetable. The facility, whose main products are diesel and jet fuel, is expected to be completed by mid 2012.

- Significant progress was made during the period in completing the natural gas pipeline connection to the Company's facilities. In anticipation of this project's completion in first quarter of 2011, the Company entered into in an agreement in December 2010 with EMG to supply natural gas to the Company's plants for a period of 20 years, starting from the first delivery. Accordingly, this will enable all of the Company's production facilities to run on natural gas instead of oil. The Company's management expects this transition to yield operational efficiencies, while playing an essential role in enabling the Group plants to meet future environmental requirements.

- According to reports issued by the gas supplier EMG and Ampal, the latter of which holds 12.5% of the former, an explosion occurred on February 5, 2011 on the gas line leading to Jordan, and consequently, this line was damaged and closed in order to carry out inspections and repairs. On March 15th, 2011, the gas flow was renewed by EMG to its Israeli customers and will gradually be returned to its expected flow.

- The Company shut down one of its facilities in the fourth quarter of 2010 in order to carry out periodic maintenance, as required every five years, and this impacted the Company's operations and profitability during this reporting period. The Company went back to full production during the first quarter of 2011.

- During the shutdown, a work accident occurred, resulting in an investigation for which the Company is still waiting to receive results.

- The company completed a financing agreement designated to provide for the credit needs of the company until the end of 2012 with a consortium of local financial institutions led by Bank Hapoalim (totaling up to $600 million) and an American financial institution, with financing guaranteed by the U.S. Export Credit Agency (totaling up to $300 million). The Company has drawn $207 million of this credit towards during 2010 for investments.

    FOURTH QUARTER 2010 RESULTS ($ millions)

                         Operating Profit              EBITDA
                         Q4/10    Q4/09         Q4/10          Q4/09
    Refining Segment      (19)      19           (10)            32
    Adjusted
    Trade Segment          (5)      (7)           (5)            (7)
    Petrochemicals          8        1            18              8
    Segment - Polymers
    Petrochemicals          3        5             3              7
    Segment - Aromatics
    Petrochemicals          -        -             -              -
    Segment - Lube-Oils

Adjusted refining margin for Q4 2010 totaled USD/bbl 3.6, compared with the average Mediterranean Ural Cracking quoted by Reuters of USD/bbl 2.8. Adjusted refining margin for Q4 2009 totaled USD/bbl 3.1, compared with the average margin of USD/bbl 2.9.

Adjusted consolidated EBITDA totaled $8 million for the fourth quarter 2010, compared with $39 million in the same quarter in 2009.

Financing expenses totaled $23 million in Q4 2010, compared with $18 million in Q4 2009.

Consolidated net income for Q4 2010 was $24 million, compared $182 million in Q4 2009.

Mr. Yashar Ben Mordechai, CEO of Oil Refineries: "During the course of 2010, ORL outperformed Reuter's average Mediterranean Ural Cracking margin. However, the increase in world crude oil prices accompanied by the tighter petroleum product prices, reduced the Company's refining margin and eroded our profitability. Despite the weakness in the fuel markets, there is an impressive strengthening of the petrochemical markets, particularly in the area of polymers. As such, the Company decided this past year to make two related investments in the amount of $105 million with expected combined returns of about $80 million a year. The first is a $45 million investment 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. 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. The facility shutdown in the fourth quarter also impacted the Company's operations and profitability during this reporting period, though the Company went back to full production during the first quarter of 2011. During the course of 2010, ORL merged CAOL's and the Company's headquarters, operations and sales team, creating a management system that could realize a rapid achievement of the merger benefits between the companies. Maximizing this value has led to improved combined margins, resulting in the more efficient management of the Company's subsidiaries and the elimination of overlapping expenses."

Mr. Ben Mordechai added: "The Company has completed this past year a number of facility upgrades which have already contribute to improved utilization rates and increased quantities refined. Likewise, construction began on the hydrocracker and is going as planned, according to the established timetable. The facility, whose main products are diesel and jet fuel, is expected to be completed by mid 2012. This project will strengthen ORL's position as the leading refinery in the area. At the start of this year, the gas pipeline connection to the Company's facilities was completed and we are at present waiting for authorization from the gas authorities to transition to the use of natural gas."

Mr. Yossi Rosen, Chairman of the Board of Oil Refineries: "This year, the Company implemented its strategic plan which included, among others, the consolidation of headquarters, raising the flexibility and diversity among the various production facilities centers, increasing the production volumes of high value products such as petrochemicals (i.e.; polymers and aromatics), and leveraging company synergies following our merger. These measures, along with reducing the volume of fuel oil production, reduced our exposure to oil price fluctuations throughout the year, and allowed us to maximize the benefits of other revenue drivers. Since the beginning of 2011, the Company changed its hedging policy for crude oil prices by reducing the exposure of un-hedged inventory from 600 thousand tons to 350 thousand tons. This is expected to protect the Company from such fluctuations in the long term. The Company also entered into in an agreement with EMG to supply natural gas to the Company's plants for a period of 20 years, starting from the first delivery. Accordingly, this will enable all of the Company's production facilities to run on natural gas instead of oil. The Company's management expects this transition to yield operational efficiencies while playing an essential role in enabling the Group plants to meet future environmental requirements. This will make ORL one of the more environmentally responsible oil refinery and petrochemical companies in the Mediterranean basin.

Mr. Rosen further added: "In addition to the investment activities undertaken to strengthen the Company, ORL is making many efforts to improve its environmental footprint such as the transition to natural gas, as well as other day-to-day operational activities. The completion of the hydrocracker will allow us to begin the production and sale of vastly improved diesel fuel which will result in decreased pollutant emissions from vehicles throughout the country. This process is compatible with company policies, which is to continually strive to improve the fuel quality it produces. The Israeli government's decision to permit tax breaks and grants to encourage export is a welcome step in helping to strengthen the competitive standing of Israeli industries on a global level. "

Conference Call

The Company will also be hosting a conference call today, March 21, 2011, at 13:30 GMT, 9:30 ET, 6:30 PST and 15:30 Israeli Time.

On the call, management will present a presentation reviewing the fourth quarter and full year 2010 highlights and industry trends. The presentation is available for download from the Company's website http://www.orl.co.il: Investor Relations > Financial Reports.

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 number.

    US Dial-in Numbers: 1-888-407-2553
    UK Dial-in Number: 0-800-917-5108
    Israel Dial-in Number: 03-918-0644
    International Dial-in Number: +972-3-918-0644

at: 13:30 GMT, 9:30 ET, 6:30 PT, 15:30 Israel time. A replay of the call will be available after the call on the Company's website at http://www.orl.co.il.

The conference call will be accompanied by a presentation available for download from the Company's website, www.orl.co.il, under investor relations on March 21, 2011.

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 http://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.

    Consolidated Statements of Financial Position
    USD thousands

                                             December 31
                                              2010      2009
    Current assets
    Cash and cash equivalents                6,704    34,961
    Deposits                               126,991    77,637
    Trade receivables                      366,227   360,876
    Other receivables                       98,241    61,107
    Financial derivatives                   27,577    21,095
    Investments in financial assets at
    fair value through comprehensive
    income                                 106,895   107,034
    Inventories                          1,200,922 1,016,453
    Current tax assets                       1,819     3,957
    Total current assets                 1,935,376 1,683,120

    Non-current assets
    Investments in equity-accounted
    investees                               16,455    13,673
    Investments in available-for-sale
    financial assets                        17,701    10,909
    Loan to Haifa Early Pensions Ltd.       77,014    76,053
    Long term loans and debit balances       3,501     3,951
    Financial derivatives                  192,990   104,510
    Employee benefit plan assets             7,922     9,993
    Deferred tax assets                        307        --
    Property, plant and equipment        2,030,414 1,891,659
    Deferred costs                          12,535     1,366
    Intangible assets                       78,950    93,187

    Total non-current assets             2,437,789 2,205,301

    Total assets                         4,373,165 3,888,421

                                         December 31
                                              2010      2009
    Current liabilities
    Loans and borrowings                   773,792   603,685
    Trade payables                         619,037   542,025
    Other payables                         102,099   105,903
    Current tax liability                   24,278        --
    Financial derivatives                   63,292    34,708
    Provisions                               9,231    11,582
    Total current liabilities            1,591,729 1,297,903

    Non-current liabilities
    Bank loans                             624,468   358,310
    Debentures                             872,421   853,205
    Liabilities for finance lease            9,491     8,768
    Other long-term liabilities                 --    15,973
    Financial derivatives                    5,195        --
    Employee benefits                       70,537    63,871
    Deferred tax liabilities                58,579   138,464
    Total non-current liabilities        1,640,691 1,438,591

    Total liabilities                    3,232,420 2,736,494

    Capital

    Non-controlling interests                   --    17,183

    Share capital                          586,390   586,390
    Share premium                          100,242   100,242
    Reserves                                45,516    35,571
    Retained earnings                      408,597   412,541
    Total equity attributed to           1,140,745 1,134,744
    shareholders of the Company

    Total capital                        1,140,745 1,151,927

    Total liabilities and capital        4,373,165 3,888,421

    Consolidated Statements of Comprehensive Income

    USD thousands

                                         For the year ended December 31,
                                              2010       2009       2008

    Revenue                              6,791,809  5,141,480  8,257,458

    Cost of sales, refinery and
    services                             6,561,599  4,840,325  8,303,889
    Revaluation of open positions in
    derivatives on prices of goods and
    margins, net                            27,179     38,606     (7,465)
    Total cost of sales                  6,588,778  4,878,931  8,296,424

    Gross profit (loss)                    203,031    262,549    (38,966)

    Selling and marketing expenses         (99,282)   (74,169)   (75,749)
    General and administrative expenses    (57,955)   (38,553)   (52,154)
    Negative goodwill arising on a
    business combination                        --    137,000     14,535
    Profit from revaluation of a prior
    holding due to increase in control          --     77,561         --
    Loss from the loss of material
    impact in a former equity-accounted
    investee, net of tax                        --     (7,091)        --
    Operating profit (loss)                 45,794    357,297   (152,334)

    Finance revenues                        89,330     61,223     64,979
    Financing expenses                    (140,439)   (86,866)  (126,034)
    Financing expenses, net                (51,109)   (25,643)   (61,055)

    Company's share in profits of
    equity accounted investees, net of
    tax                                        476      4,892     (3,111)

    Profit (loss) before taxes on
    income                                  (4,839)   336,546   (216,500)

    Tax benefit                             81,619     12,698    107,292

    Profit (loss) for the period            76,780    349,244   (109,208)

    Items of other comprehensive income
    (loss)
    Actuarial gains (losses) from a
    defined benefit plan, net               (5,724)     4,859     (9,318)
    Foreign currency translation
    differences for foreign operations        (309)        77     (1,078)
    Group's share of other
    comprehensive income (loss) of a
    former equity-accounted investee,
    net of tax                                  --     10,433    (10,433)
    Effective share of the change in
    fair value of cash flow hedging,
    net of tax                               3,529         --         --
    Change in fair value of
    available-for-sale financial
    assets, net of tax                       6,143      2,270         --

    Other comprehensive income (loss),
    net of tax                               3,639     17,639    (20,829)

    Comprehensive income(loss) for the
    period                                  80,419    366,883   (130,037)

    Earnings (loss) per share (USD)
    Basic and diluted earnings (loss)
    per ordinary share                       0.032      0.175     (0.055)

    Results of the Group's operations

    The following table presents selected information compared to last year
    (USD millions)



                                           Petrochemicals
                     Refining    Trade     Polymers   Aromatics   Oils
                     Year ended December 31
                     2010  2009  2010 2009 2010  2009 2010  2009  2010 2009
    Revenue          5,034 3,859  215  506 1,012  414   451   362   80   --
    Inter-company
    operations         836   468   --   40   --    --    33    40   --   --
    Total sales      5,870 4,327  215  546 1,012  414   484   402   80   --
                                                                         --
    Cost of sales    5,768 4,105  228  549   484  210    56    15   28   --
    Inter-company
    operations          33    40   --   --   410  169   378   333   41   --
    Total cost of
    sales            5,801 4,145  228  549   894  379   434   348   69   --

    Gross profit
    (loss)              69   182  (13)  (3)  118   35    50    54   11   --

    Selling, general
    and
    administrative
    expenses            61    58    5    4    51   25    25    25    4   --
    Inter-company
    operations          --    --   --   --     2    2     2     2   --   --
                        61    58    5    4    53   27    27    27    4   --

    Operating profit
    (loss) for
    segments             8   124  (18)  (7)   65    8    23    27    7   --

    Negative
    goodwill arising
    on acquisition
    Profit from
    revaluation of a
    former holding
    following
    increase of
    control
    Loss from loss
    of material
    impact in an
    equity-accounted
    investee

    Amortization of
    the excess cost
    arising from
    acquisition of
    investees
    Operating profit

    Financing
    expenses, net
    Share in profits
    (losses) of
    investees, net
    of tax
    Profit (loss)
    before taxes on
    income
    Tax benefit
    Profit for the
    period


    Table Continued below

                      Adjustments
                          to
                     consolidated  Consolidated

                       Year ended December 31
                      2010   2009   2010   2009
    Revenue             --     --   6,792  5,141
    Inter-company
    operations        (869)  (548)     --     --
    Total sales       (869)  (548)  6,792  5,141

    Cost of sales       --     --   6,564  4,879
    Inter-company
    operations        (862)  (542)     --     --
    Total cost of
    sales             (862)  (542)  6,564  4,879

    Gross profit
    (loss)              (7)    (6)    228    262

    Selling, general
    and
    administrative
    expenses            --     --     146    112
    Inter-company
    operations          (4)    (4)     --     --
                        (4)    (4)    146    112

    Operating profit
    (loss) for
    segments            (3)    (2)     82    150

    Negative
    goodwill arising
    on acquisition                     --    137
    Profit from
    revaluation of a
    former holding
    following
    increase of
    control                            --     77
    Loss from loss
    of material
    impact in an
    equity-accounted
    investee                           --     (7)

    Amortization of
    the excess cost
    arising from
    acquisition of
    investees                         (36)    --
    Operating profit                   46    357

    Financing
    expenses, net                     (51)   (26)
    Share in profits
    (losses) of
    investees, net
    of tax                             --      5
    Profit (loss)
    before taxes on
    income                             (5)   336
    Tax benefit                        82     13
    Profit for the                     77    349
    period

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


                                         Petrochemicals
                   Refining    Trade     Polymers  Aromatics   Oils
                   Three months ended December 31
                    2010  2009  2010 2009 2010 2009 2010  2009  2010 2009

    Revenue        1,082 1,177    84   84  240  125   69   108    21   --
    Inter-company
    operations       101   144     -   11   --   --    1    10    --   --
    Total sales    1,183 1,321    84   95  240  125   70   118    21   --

    Cost of sales  1,197 1,319    88  100  164   64   30     6    10   --
    Inter-company
    operations         2    10     -    -   58   53   35    99     9   --
    Total cost of
    sales          1,199 1,329    88  100  222  117   65   105    19   --

    Gross profit
    (loss)           (16)   (8)   (4)  (5)  18    8    5    13     2   --

    Selling,
    general and
    administrative
    expenses          12    13     1    2    7    6    2     8     2   --
    Inter-company
    operations         -     -     -    -    3    1    -     -     -   --
                      12    13     1    2   10    7    2     8     2   --

    Operating
    profit (loss)
    for segments     (28)  (21)   (5)  (7)   8    1    3     5    --   --

    Negative
    goodwill
    arising on
    acquisition
    Profit from
    revaluation of
    a former
    holding
    following
    increase of
    control

    Amortization
    of the excess
    cost arising
    from
    acquisition of
    investees
    Operating
    profit

    Financing
    expenses, net
    Share in
    profits
    (losses) of
    investees, net
    of tax
    Profit (loss)
    before taxes
    on income
    Tax benefit
    Profit for the
    period



                   Adjustments
                       to
                  consolidated  Consolidated

                 Three months ended December 31
                    2010   2009    2010   2009

    Revenue           --     --   1,496  1,494
    Inter-company
    operations      (102)  (165)    --     --
    Total sales     (102)  (165)  1,496  1,494

    Cost of sales     --     --   1,489  1,489
    Inter-company
    operations      (104)  (162)     --     --
    Total cost of
    sales           (104)  (162)  1,489  1,489

    Gross profit
    (loss)             2     (3)      7      5

    Selling,
    general and
    administrative
    expenses           4      -      28     29
    Inter-company
    operations        (3)    (1)     --     --
                       1     (1)     28     29

    Operating
    profit (loss)
    for segments       1     (2)    (21)   (24)

    Negative
    goodwill
    arising on
    acquisition                       -    137
    Profit from
    revaluation of
    a former
    holding
    following
    increase of
    control                           -     77

    Amortization
    of the excess
    cost arising
    from
    acquisition of
    investees                        (6)     -
    Operating
    profit                          (27)   190

    Financing
    expenses, net                   (23)   (18)
    Share in
    profits
    (losses) of
    investees, net
    of tax                            -      1
    Profit (loss)
    before taxes
    on income                       (50)   173
    Tax benefit                      74      9
    Profit for the
    period                           24    182


    ---------------------------------
    [1] In 2009, 50% of CAOL's results were consolidated

    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


SOURCE Oil Refineries Ltd