Management report

Coastal refining 

Reference market

  Year 2013 Year 2012
     
Crude oils (USD/Barrel)    
Brent crude price(2) 108,66 111,67
Ural/brent differential(3) (0,36) (0,91)
Azeri light/brent differential 3,22 2,97
     
Products (USD/Tonne)    
Transport diesel price  931,03 969,61
Unleaded gasoline price 981,97 1.021,71
Fuel oil price  588,01 625,13
     
Crack Spread (USD/Barrel)    
Transport diesel - brent 16,14 18,38
Gasoline - brent  8,91 10,69
ATZ fuel oil - brent (16,06) (13,22)
     
Margin indicator    
EMC (USD/Barrel)(4) (2,10) 0,19
EMC (EUR/Barrel)(4) (1,58) 0,15
     
EUR/USD Exchange rate 1,328 1,285


Source: Platts
(1) average prices in the period
(2) Brent Dated: reference light crude, on mean FOB basis
(3) Ural: reference heavy crude, on mean CIF basis
(4) value of the "notional" EMC contribution margin to FOB yields obtained with a 50% mix of the Ural and Azeri Light crudes. The EMC notional margin refers
to a complex refinery characterised by catalytic conversions oriented to the production of gasoline (Fluid Catalytic Cracking plant)


In 2013, Brent crude prices (108.7 USD/barrel) remained at a high level, albeit slightly lower than in 2012 (111.7 USD/barrel).
With reference to the Mediterranean, the reduction in Iraqi volumes, the lack of Iranian crude (embargoed) and Saudi grades (exported to Asia) and the growing exports of Ural crude to China (through the ESPO pipeline) pushed the Ural differential above the 2012 levels (-0.36 USD/barrel in 2013, vs. -0.91 USD/barrel in 2012).
The EMC FCC reference notional margin, i.e. -2.10 USD/barrel in 2013, was negative and lower by approximately 2.3 USD/barrel than in 2012 (+0.19 USD/barrel). The causes are manifold and they stem both from the generalised weakness of the products (average crack spread lower by over 2 USD/barrel than in 2012) and from the increase in the Ural differential (+0.55 USD/barrel) and Azeri Light differential (+0.26 USD/barrel).

Highlights of coastal refining perfomance at adjusted replacement coast(1)

(To enhance the understandability of Coastal Refining performance, the results of this business are shown at their adjusted replacement cost, which reflects, for ERG's share (40% until August 2012 and 20% from September 2012 onwards), the results of ISAB S.r.l., whose contribution to income at non-adjusted replacement cost values is represented in the measurement of the investment under the equity method of accounting.

(Eur million) Year 2013 Year 2012
Revenues from third parties 5.290 6.517
Intra-segment revenues 181 749
Adjusted revenues from ordinary operations 5.470 7.266
EBITDA at adjusted replacement cost (50) (32)
Adjusted amortisation, depreciation and write-downs (23) (38)
EBIT at adjusted replacement cost (73) (70)
Adjusted capital expenditures on tangible and intangible fixed assets - 14


(1) the illustrated figures do not include:
- inventory gains (losses) of -1 in 2013 (+8 in 2012)
- the non-recurring items indicated in the section "Alternative performance indicators", to which reference should be made for further details

The revenues of 2013 were lower than in the previous year, mainly as a result of the reduction of the share in ISAB and the consequent reduction in processed volumes, which in 2013 were also affected by the downtime of the plants for cyclical maintenance, carried out in the first half of the year.

EBITDA at adjusted replacement cost of 2013 was negative by EUR 50 million. The figure, in decline compared to the same period of 2012 (EUR -32 million), was affected by a highly negative refining scenario and by the effects of the downtime for cyclical maintenance that took place in March and April. The crude oil and product trading activities carried out in the businesses transferred to ERG Supply & Trading recorded a contribution of approximately EUR 7 million.

Margins and processing 

  Years 2013 Years 2012
     
Unit contribution margins at adjusted replacement cost(1) of ERG coastal refining    
USD/Barrel (0,32) 1,36
EUR/Barrel (0,24) 1,06
EUR/Tonne(2) (1,7) 7,8
     
Processed volumes (KTNOS) 2.215 4.479


(1)  expressed net of variable production costs (principally costs for utilities), they do not include inventory gains (losses) and non-recurring items and they include the contribution allocable to ERG of ISAB S.r.l.
(2)  barrel/tonne conversion factor equal to 7.303 in 2013 (7.382 in 2012)

In 2013, unit margins were still severely depressed and lower than those of the same period of 2012, both because of the persistent severe weakness of the environment, and because of the plant non-optimisation in the first half, tied to the outage and subsequent re-start of the refining plants.
 

The contraction in processed volumes compared to 2012 is tied both to the reduction of the share in ISAB S.r.l. from 40% to 20% (starting from September 2012), and to the general shutdown of the ISAB North plants, as well as to the slowdown of the ISAB South plants in March and April 2013.
The API degree of the crude oils processed in 2013 (32.4) is slightly lower than that of the same period of 2012 (34.4).
Lastly, on 30 December 2013, ERG sold the final 20% interest in ISAB S.r.l.; as a result of this transaction, all inventories owned by ERG were sold on the same date and the refining activities carried out by ERG at the Priolo site were definitively shut down.

Highlights of performance of ISAB S.r.l.

The figures that follow refer to 100% of the company.

(Eur million) Year 2013 Year 2012
EBITDA at replacement cost(1) 153 200
Amortisation, depreciation and write-downs (110) (110)
EBIT at replacement cost(1) 43 89
Capital expenditures on tangible and intangible fixed assets 105 33

(1)  the data shown do not include the inventory gains (losses)

In 2013, the EBITDA of ISAB S.r.l. was EUR 153 million; the severe decline from the same period of 2012 is tied to the fact that in the past year the company's result had benefited from an important effect deriving from the reduction in the stocks of crude oils and products.

ERG S.p.A. - Genova

Paolo Merli

Head of Corporate Finance & Investor Relations

0039 010 2401376

ERG S.p.A. - Genova

Matteo Bagnara

Investor Relations

0039 010 2401423

ir@erg.it


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