Post Mortem PetroPlus

Now it has been a full half year since the last time I wrote about PetroPlus. In the mean time, various pieces of the "empire" have been sold off, the Swiss refinery has been leased for 6 months, etc.

For me, the whole thing was a planned gimmick - a way that the PetroPlus management could get out of a bind (a company that did not have a chance of surviving the next 6 months, not to mention the next 6 years). They managed to duck the personnel bullet in every location, the environmentla headaches, and most if not all of the other social and legal responsibilities as well.

Even to the apparent theft in the main office in Zug - theoretically and curiously, only the board room furniture was stolen, but I strongly suspect that some incriminating documents disappeared at the same time, and that "theft" was never reported.

I don't know what has happened to all the executives involved in the debacle, but I suspect that they all came out "smelling like a rose." I seriously doubt that a single one of them was or will be called to stand for the responsibility that is supposed to go with corporate governance.

Shame on you people. You have made a mockery of the entire idea of clean business practices.

More About PetroPlus

It has been more than a month now since the banks pulled the plug on PetroPlus' credit line for crude oil purchases. During that time there has been a lot of hype about outside investors, mysterious bank connections providing more money, sales of refineries, permanent shutdowns of refineries, etc.

The apparent truth, to date, is that PetroPlus got some credit from one bank or another that allowed PetroPlus to keep the Coryton (UK) and Ingolstadt (Germany) refineries on line.

Recently there have been some articles in the Swiss newspapers that indicate that PetroPlus was never run by refinery people, but by investors and financial people with the idea of putting a "refining conglomerate" together and then flipping it to the highest (or maybe first) bidder. Sorry - "flipping" comes out of the Internet website business, it means selling a newly-made website quickly to earn some money - also quickly. In other words, to make a "quick buck."

Other articles are saying that the PetroPlus business model - trying to use the leverage of a refiner to be able to make use of arbitarage between crude oil and product prices - was a flop in the USA, and the continuing situation of excess and expensive refinery capacity in Europe was the final kiss of death for Petro Plus.

In any case, whatever the intentions were, the business model has proven itself to be a financial flop - for example, 11 losing quarters out of the last 12. Now, a consulting company is running the Coryton Refinery under the instructions of a British judge, and the Ingolstadt Refinery is running at about 50% of capacity using ??? for money. One has to wonder if this last stage in the process has not been a ruse to allow PetroPlus to close the unprofitable Antwerp (Belgium), Petite Couronne (France), and Cressier (Switzerland) refineries plus other lower level facilities (terminals) without having to pay up for the closure costs: personnel layoffs, ante up for the personnel pension funds, environmental cleanup costs, company closures, etc., not to mention avoiding much of the loan repayments due. It could be the icing on the cake for creating a "Petro Minus 3" with only two reasonably profitable refineries and minimum remaining debts.

What do you think? I would like to hear from you!

What Will Happen To PetroPlus?

If you have been following the financial news in Europe, you may have seen some articles about PetroPlus recently. PetroPlus is the largest independent petroleum refining company in Europe, and their refining capacity is around 4.5% of the total European refining capacity. The refineries are located in the UK, Belgium, Germany, France, and Switzerland.

The reason that PetroPlus has been in the news is that their consortium of banks that was financing the purchase of crude oil for PetroPlus's 5 refineries froze the revolving credit line about ten days ago. In effect, that is like freezing your credit card when you are on a business trip and didn't take much cash with you. If that happened to you, your trip would stop, and that is about the same as what is going to happen to PetroPlus's refineries in the coming week.

Why did the banks do that to PetroPlus? The answers are not very clear, but the basic reason (my guess) is that the European banks are scared to death of what is coming with the financial crisis in Europe. It is so bad, that the banks don't even trust each other, and would rather park their excess money in the European equivalent of the Federal Reserve Bank than trust it with another bank!

A second reason is that the European refining industry is suffering from over-capacity as the result of the economic slowdown that has been taking place over the past two years. The refineries that are owned by a company that also owns its own crude oil supplies can afford to continue on at close to maximum throughput - which is the most effcient operating mode for virtually every refinery. The excess products are sold by the umbrella company on the market, and this puts price pressure on the other refineries - like PetroPlus.

PetroPlus's refineries apparently have been operating at roughly 75-80 percent of capacity - and that has put the refineries in a perilous financial position. Proof of the pudding: PetroPlus has made operating losses for the past 8 quarters.

The question now is, how will PetroPlus come out of their own private financial crisis? There is some pressure being applied by the refinery labour unions to the governments in various countries. The idea is to force the banks to loosen up with the money so that something around 3000 people plus at least as many dependent employees in the support areas do not lose their jobs.

What other options does PetroPlus have?

• They could search for processing arrangements so that the crude oil and the products do not belong to PetroPlus, and thus the need for the revolving credit disappears. This will not happen immediately - most companies that want processing deals have them already, at least for 2012.
• They could try to sell the refineries, but this is already a buyer's market, and PetroPlus's refineries are not the most attractive in Europe
• They could just bite the bullet and shut down the entire operation, maybe retaining a few locations as terminals, and scale the company down to about 5-10% of what it is today. Scrapping the refineries will be an expensive procedure, since every refinery has its share of environmental problems that will have to be resolved - at a price.
• They might try to sell the refineries one-by-one to non-European crude oil producers so that the producers could process their own crude oil in Europe. This is not very attractive, because refining in Europe is expensive, but someone might bite on the option.
• The last option is to declare bankruptcy and let somebody else sort out the problems.

Not a very encouraging picture, is it? I suspect that the actual resolution will end up being a little bit of everything mentioned above. The refineries are in separate companies, so each one can be handled independently. The German refinery is the best candidate to continue operations, due to configuration (it has conversion capacity) and location (Bavaria). The least promising is probably the French refinery, which has a large number of employees and is the oldest and technically the least sophisticated of the group. The UK refinery is facing a major turnaround (technical overhaul) in 2012, and this will be a big negative for either continued operations or a sales effort.

What will happen? Your guess is as good as mine! In any case, I wish all the colleagues at PetroPlus all the best for 2012, whatever that turns out to be!