Transcript No Slide Title

Ashdod Refinery Presentation
Company and transaction overview
January 2006
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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
Section 1
Overview of the Ashdod Refinery
Section 2
Overview of Israel’s oil market
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 before ORA sale
State of Israel1
ORL situation after ORA sale
State of Israel 1
New Investor
100%
100%
ORL2
Ashdod
Refinery
100%
Gadiv3
Haifa
Refinery
50%
Carmel
Olefins3
50%
Haifa Basic
Oil4
 Israel’s only refining player
 Ownership in several petrochemical subsidiaries
 Operates in regulated environment
1.
2.
3.
4.
–
Price controls
–
Vertical integration prohibited
ORA
ORL1
Ashdod Refinery
Haifa Refinery
100%
Gadiv3
50%
Carmel
Olefins3
50%
Haifa Basic
Oil4
 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
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%).
Includes major subsidiaries only
Petrochemical subsidiaries
Lubricants oil subsidiary
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Overview of ORL refinery operations
Ashdod Refinery
Source: ORL
Haifa Refinery
Source: ORL
 Commissioned in 1973
 Commissioned in 1938
 90,000bbls/d crude refining capacity
 180,000bbls/d crude refining capacity
 7.5 Nelson Complexity Index
 7.2 Nelson Complexity Index
 Storage capacity of 700,000m3
 To be privatised through Initial Public Offering
 Private sale process initiated
Source: ORL, industry research
Source: ORL, industry research
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ORL financial summary
000’s NIS
2002
2003
2004
1st 9 months 20051
11,513,780
11,643,373
166,364
295,957
(129,593)
(78,187)
(207,780)
(109,498)
14,072,744
13,821,979
574,130
323,365
250,765
82,896
(17,400)
316,261
220,404
18,862,798
17,767,377
1,435,702
340,281
1,095,421
(176,882)
(2,200)
916,319
773,292
20,187,228
18,519,289
1,932,866
264,927
1,667,939
(133,713)
1,534,226
1,168,300
2,731,486
74,556
3,649,425
180,979
6,636,446
2,444,364
2,287,529
4,731,893
1,904,553
6,636,446
3,719,481
84,590
3,598,898
222,072
7,625,041
3,260,647
2,272,436
5,533,083
2,091,958
7,625,041
5,122,480
113,818
3,623,807
339,442
9,199,547
3,476,412
2,890,954
6,367,366
2,832,181
9,199,547
7,065,997
116,223
3,879,446
445,162
11,506,828
4,755,417
2,768,072
7,523,489
3,983,339
11,506,828
P&L (financial year)
Turnover
Total operating costs
EBITDA
DD&A
EBIT
Interest expenses
Other expenses
Profit before tax
Net income
Balance sheet (at end of period)
Current assets
Long term investments and loans
Fixed assets
Other assets and deferred expenses
Total assets
Current liabilities
Long term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Source: ORL
(1) Balance sheet as at 30 September 2005
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Changing Israeli regulatory environment
Current situation
 No vertical integration permitted
across the downstream value chain
Industry structure
 Increased liberalisation
 Vertical integration allowed between
refiners and retailers
 Entry into other businesses such as
power generation and water
desalination allowed
 Price controls in effect
Price controls
Post-ORA sale
–
For all products at refinery gate
–
For gasoline at the pump
 Removal of price controls at the
refinery gate
 However, competition monitored to
avoid market failure
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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

1
Transaction announcement
2
Submission of Expressions
of Interest to GCA
3
Initial screening of
participants
4
Due diligence and review
5
Final screening of
participants
6
Sign-off of Sale and
Purchase Agreement
7
Submission of proposals
8
Selection of
preferred offeror
9
Completion and closing
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
Haifa Refinery
 Refinery construction started in 1970
 Completed in 1973
Ashdod Refinery
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
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Transportation
 Ashdod Refinery connected to
Midstream and downstream infrastructure
– Ashdod, Ashkelon and Eilat ports and
terminals
Haifa Refinery
Crude oil
– Haifa Refinery
Haifa port
 Own storage capacity of ~700,000 cubic
metres
Pipeline1
Pipeline
Trucks
Ships
– ~200,000m3 for crude oil and feedstock
– ~500,000m3 for intermediates and products
Import / export
of intermediates
& products
IEC sea-lines
 Other transport infrastructure
Ashdod Refinery
– Modern truck loading rack
– Connected to two sea-lines
 Product shipments
Crude oil
Ashkelon port
and terminal
– Directly by pipeline or truck
Third party terminal
Pipeline
– Indirectly by sea
– Pipeline shipping accounts for approximately
60% of product transport
Crude oil
National
pipeline
grid
Truck load rack for
Fuel oil
LPG
Distillates
Eilat port
Source: ORL
(1) The pipeline does not cross the sea-line and is thus represented differently
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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
Source: ORL
(1) Semi-regeneration
900bbls/d
Source: ORL
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Upgrade and new builds
 1984 – Vacuum tower modernised
 1987 – Visbreaker overhaul
Upgrades and
new builds
(1973-2005)
 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
 43MW natural gas-powered co-generation plant
Ongoing and
future projects
 New SRU2 plant
 Safety, environmental and reliability projects
Source: ORL
(1) Fluid catalytic cracker
(2) Sulphur recovery unit
(3) Methyl tertiary butyl ether
(4) Hydro desulphurisation
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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
3%
1% 1%
Management
5%
– Highly skilled workforce
Security
– High proportion of engineers
Operations
33%
 ~30 additional temporary employees
Safety, Health & Environment
45%
 Limited management staff
– Many functions provided/controlled
centrally by ORL
Maintenance
Human resources
Other
12%
Ashdod Refinery Manager
Health Safety
Environment Quality
Maintenance
Planning and
Supervision of
Maintenance Work
Central &
Regional
Maintenance
Manpower and
Organisational
Extension 1
Projects
Extension 1
Instrumentation
Electricity and
Control
Safety and Risk
Ecology
Quality
Laboratory
Security and
Administration
Source: ORL
(1) This unit is based in Asdod Refinery, but is under the control of and reports to ORL’s management in Haifa
Production
Plant Inspection
Process
Management
Process Units
Products and
Loading
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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
Product flows from Haifa to Ashdod
Product
Quantity (tons per annum)
HVGO
500,000
High octane components
49,000
Propane
Variable
– 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 Ashdod to Haifa
Product
Heavy/light naphtha
Propylene
Blending components
Source: ORL
Quantity (tons per annum)
188,000
50,000
Variable
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Transitional arrangements
Current situation
Transition period
 Ashdod Refinery managed and operated
as an integral part of ORL
 Effective upon closing of Transaction
 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 standalone operation
– Commercial and financial functions
– HR, legal, technical, comptroller, IT
 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
Balance sheet1 as of 31 December 2004 (000’s NIS)
Liabilities and shareholders’ equity
Assets
Receivables and debit balances
Inventory
453
1,230,494
Current maturities of long term loans
Payables and credit balances
1,230,947
123,560
15,636
139,196
Long-term liabilities
Long-term investments and loans
Loans
Debentures
455,308
1,359
Bank loans
219,993
1,359
Deferred taxes
148,897
Fixed assets
Property, plant and equipment
Materials and spare parts
Liabilities for severance pay, net
640,775
34,935
675,710
Other assets and deferred expenses
Total assets
91,846
1,999,862
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
Source: ORL
(1) The pro-forma balance sheet is subject to amendments and will be finalised at a later stage in the sale process
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
Crude oil
 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
 9 months to end of September 20052,3
Refined
products
– 9.2 million tons sold
Refined products split – Ashdod Refinery 4
21%
5%
Naphtha
Gasoline
– Export sales account for ~25% of total
product sales
26%
Kerosene
Gasoil
9%
Fuel oil
11%
(1) Former Soviet Union
(2) Includes both Ashdod and Haifa refineries product sales
(3) Source: ORL
(4) YTD 2005
23%
Source: ORL
5%
Other
Diesel
ONSCREEN
Israel oil product demand
 Stable motor gasoline demand due to
increased efficiency of vehicle fleet
Israel oil product domestic consumption (000’s tons)1
12,000
10,000
 Diesel demand growth in line with economic
growth
8,000
6,000
4,000
 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
2,000
0
11 , 632
1,117
239
10 , 678
10 , 580
1,061
260
1,054
3,382
287
2,961
846
447
594
2,337
2,382
2,447
3,737
10 , 975
1,136
288
 LPG use in line with economic growth
10 , 354
992
234
1,097
2,432
193
2,253
701
604
835
2,535
2,578
2,577
762
767
754
2,162
3,098
771
667
2,123
462
2,048
431
2,077
442
1,994
461
2,094
472
483
2000A
2001A
2002A
2003A
2004A
2005A
718
Israel oil product imports (000’s tons)
3,000
2,500
2 , 454
2 , 488
2 , 451
2 , 097
2,000
 Modest increases in kerosene demand
10 , 173
1 , 757
1,526
1,443
279
412
323
552
96
553
627
656
42
82
103
2001A
2002A
2003A
1,065
1,500
0
1 , 475
1,078
1,000
500
1,501
2000A
LPG
Gasoil
Gasoline
Fuel Oil
30
779
198
Kerosene
Bitumen
30
129
448
72
2004A
293
14
239
150
2005A
Diesel
Petrochemical feedstock
Source: ORL estimates
(1) Data does not include ORL’s own consumption and military use
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Current oil market structure
Midstream
Crude import
(ORL)
Storage and transportation of crude
(PEI – Tashan)
(EAPC – Katza)
Crude
Import of distillates
(Fuel companies)
Ashdod Refinery
Haifa Refinery
Import, heavy oils and coal
(Israel Electric Co.)
ORL
Refined
products
Downstream
Storage and supply
(PEI, EAPC and Pi-Gliloth)
Fuel companies
(Paz, Delek, Sonol, Dor Alon)
Trade
and Services
Source: ORL, industry research
Airports
Fuel Stations
Agriculture
Industry
UNEX
Power
Stations
Ports
(Bunkering)