An Overview October 2014
Industry Upstream - It involves the exploration for and extraction of petroleum crude oil and natural gas. The upstream oil sector is also known as the exploration and production (E&P) sector. Midstream - The midstream involves storing, marketing and transporting petroleum crude oil,natural gas. Midstream operations aresometimes included in the downstream category. Downstream - The downstream sector includes petroleum refineries, petroleum product distribution, retail outlets and natural gas distribution companies.
mln tonnes 1990 2000 2010 2013 World Oil Reserves 145,007 177,550 228,851 238,204 World Consumption (annual) 3,162 3,584 4,040 4,185 World Production (annual) 3,175 3,620 3,979 4,133 Largest Consumer USA - 801 mln tonnes China - 507 mln tonnes Largest Producer Saudi Arabia - 542 mln tonnes Russia - 531 mln tonnes Largest Reserves Venezuela - 46,576 mln tonnes Saudi Arabia - 36,518 mln tonnes
Jargon Over 195 different types of s API Gravity: American Institute Gravity, which is a measure that compares how light or heavy a crude oil is in relation to water. If an oils API Gravity is greater than 10 then it is lighter than water and will float on it. If an oils API Gravity is less than 10, it is heavier than water and will sinks. West Texas Intermediate: also known as Texas Light Sweet is a light crude oil. API Gravity of 39.6 degrees, 0.24% sulfur content Brent Blend: a combination of different oils from 15 fields throughout the Scottish Brent and Ninian systems located in the North Sea. API Gravity is 38.3 degrees, 0.37 percent sulfur content OPEC Basket: The acronym OPEC stands for Organization of -Exporting Countries which is an organization that was formed in 1960 in order to create some common policy for the production and sale of oil within its jurisdiction. Comprises 11 member countries crude stream. API Gravity is 32.7 degrees, 1.77 percent sulfur content
000' mln tonnes World Reserves 250 200 150 100 50-2011 2012 2013 North America South & Central America Europe & Eurasia Middle East Africa Asia Pacific Total
mln tonnes mln tones World Production 1,600 4,800 1,400 4,200 1,200 3,600 1,000 3,000 800 2,400 600 1,800 400 1,200 200 600-2010 2011 2012 2013 - North America South & Central America Europe & Eurasia Middle East Africa Asia Pacific World Production
mln tonnes mln tones World Consumption 1,600 4,800 1,400 4,200 1,200 3,600 1,000 3,000 800 2,400 600 1,800 400 1,200 200 600-2010 2011 2012 2013 North America South & Central America Europe & Eurasia Middle East Africa Asia Pacific World Consumption -
USD / bbl 160 Price Comparison WTI and Brent 140 120 100 80 60 40 20 - Brent Crude WTI
Global Trade In mln tons
& Shale Gas ly Recoverable Reserves Shale Gas
1990 2000 2010 2013 Global Capacities (mln tonnes) 3,706 4,094 4,572 4,727 YoY 10.5% 11.7% 3.4%
Process } Light Distillates } Medium Distillates } Heavy Distillates
Types of Topping - The topping refinery just separates the crude into its constituent petroleum products by distillation, known as Atmospheric Distillation. Topping Refinery produces naphtha but no gasoline. Hydroskimming - The hydroskimming refinery is equipped with Atmospheric Distillation, naphtha reforming and necessary treating processes. Hydroskimming refinery is more complex than a topping refinery and it produces gasoline. Cracking - The cracking refinery, in addition to the above, is equipped with vacuum distillation and catalytic cracking. The cracking refinery reduces fuel oil by conversion to light distillates and middle distillates. Coking - The coking refinery is equipped to process the vacuum residue into high value products using the Delayed Coking Process. The coking refinery adds further complexity to the cracking refinery by high conversion offuel oil into distillates and petroleum coke. Nelson Complexity Index - The Nelson Complexity Index typically varies from about 2 for Hydroskimming refineries, to about 5 for the Cracking refineries and over 9 for the Coking refineries., with high Nelson Complexity Index have the necessary flexibility in processing a wide variety of crudes and are capable of achieving higher value addition.
mln tonnes mln tones Global Capacities 1,600 4,800 1,400 4,200 1,200 3,600 1,000 3,000 800 2,400 600 1,800 400 1,200 200 600-2010 2011 2012 2013 - North America South & Central America Europe & Eurasia Middle East Africa Asia Pacific Global Capacities 2010 2011 2012 2013 Global Capacities (mln tonnes) 4,572 4,591 4,658 4,727 YoY 1.1% 0.4% 1.5% 1.5%
%age %age Regional Capacity Utilization 90% 90% 80% 80% 70% 70% 60% 60% 50% 2010 2011 2012 2013 North America South & Central America Europe & Eurasia Middle East Africa Asia Pacific Global Capacity Utilization 50%
Global Refined Products Trade In mln tons
s
Lube Oil Jargon Viscosity Index? Used to measure the thickness of liquid. High for thin liquids and low for thick, which means, The higher the VI, the less an oil will thicken as it gets cold and the less it will thin out at higher temperatures providing better lubricant performance at both temperature extremes. 11% 9% 30% 50% Group I Group II Group III Group IV & V
Global Demand ~38.6mln tonnes Europe: Oversupplied market Low prices. pressure on margins Weak demand Capacity expansion Threat from the US supply North America: Demand Driver: USA Shift towards Group II World s largest refinery coming online may create a supply glut Net exporter Middle East: Demand Driver: Industrialization and vehicle growth ~15% expected growth in lube demand Rising capacities 17% 8% 7% 25% 43% Asia North America Europe Middle East Others Asia: Majorly driven by developing economies like China & India Stable supply since no planned maintenance Expected urbanization in China expected to support the lube market Govt. restriction on vehicle purchase may hinder the demand
Margins Margins still under pressure post Baltic Sea glut problems. Going forward, the margins are expected to remain under pressure owing to the extensive capacity expansion, which is expected to rise by ~3.5mln tonnes per annum by 2014.
Capacity Expansion
% age mln barrels Recoverable Reserves 100% 9% 2% 1% 7% 9% 400 80% 9% 8% 8% 11% 8% 10% 320 60% 20% 15% 14% 240 40% 160 20% 51% 60% 58% 80 0% 2011 2012 2013 OGDCL MOL PPL POL UEPL Others Total -
% age mln barrels Crude Production 100% 80% 5% 6% 5% 13% 10% 15% 5% 4% 3% 10% 10% 9% 30 24 60% 11% 12% 14% 18 40% 12 56% 57% 54% 20% 6 0% 2011 2012 2013 OGDCL MOL PPL POL UEPL Others Total -
Capacity & Utilization Refinery 2011 2012 2013 Capactity Utilization Capactity Utilization Capactity Utilization Expansion Byco 1.7 26.9% 1.8 7.3% 7.2 10.8% - Pak Arab Refinery 4.5 74.6% 4.5 70.4% 4.5 91.6% - National Refinery 2.7 89.3% 2.7 83.9% 2.7 78.8% - Pakistan Refinery 2.1 76.2% 2.1 78.7% 2.1 74.1% - Attock Refinery 1.9 95.8% 1.9 97.5% 2.0 100.0% 0.5 ENAR Petrotech 0.1 86.3% 0.1 98.2% 0.3 56.0% - Dhodak Refinery 0.1 4.4% - - - - - Total 13.15 74% 13.09 70% 18.79 57% 0.5 Without Byco 11.6 86%
mln tonnes Processed 25.0 20.0 3.1 3.1 3.3 15.0 6.7 6.1 7.4 10.0 5.0 12.4 11.5 10.5-2011 2012 2013 POL Imports Imported Crude Local Crude
Percentage Product Mix 100% 80% 4% 4% 4% 5% 5% 4% 9% 8% 7% 9% 8% 7% 13% 14% 14% 60% 26% 25% 26% 40% 20% 34% 36% 37% 0% 2011 2012 2013 HSD FO Motor Spirit Aviation Fuel Naphta Non Energy Products Other Energy Products
% age mln tonnes Supply Demand Mix Fuels 100% 10 80% 44% 52% 57% 50% 44% 46% 25% 23% 33% 8 60% 6 40% 20% 56% 48% 43% 50% 56% 54% 75% 77% 67% 4 2 0% 2011 2012 2013 2011 2012 2013 2011 2012 2013 - HSD Motor Spirit Furnace Oil Imports Local Consumption
Exchange Rate 112 108 104 100 96 92 88 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Exchange Gain Rate / Loss 1,000 500-1QFY14 2QFY14 3QFY14 4QFY14 (500) (1,000) (1,500) PARCO NRL ARL PRL
Impact of Regulatory Duty Government of Attock National Pak Pakistan Byco Country's FY13 Pakistan Refinery Refinery Arab Refinery Collection Sector (Imports) (ARL) (NRL) Refinery (PRL) Pakistan Sale of HSD (Thousand Tonnes) 6,820 2,954 3,866 554 725 (PARCO 1,655 607 (Byco) 290 Conversion to Liters (Mln Liters) 8,149 3,530 4,620 661 866 1,978 725 346 Average Ex-Refinery Price (PKR/Liter) 74.39 74.39 74.39 74.39 74.39 74.39 74.39 74.39 Total Revenue (PKR Mln) 507,318 219,726 287,592 41,177 53,920 123,128 45,159 21,538 Deemed Duty on HSD - 7.5% (PKR Mln) 38,049 16,479 21,569 3,088 4,044 9,235 3,387 1,615 Profitability (PKR Mln) 27,580 2,627 3,520 19,950 1,482 Profitability excluding deemed duty (PKR Mln) 6,010 (461) (524) 10,716 (1,905) Deemed Duty increase from FY16-9% (PKR Mln) 7,610 3,296 4,314 618 809 1,847 677 323
Price Disclosure Particulars (Rs/ Litre) HSD (Diesel) PMG (Petrol) Retail Direct Retail Direct LDO Ex Refinery Price 78.72 78.72 72.55 72.55 66.56 Levy 8.00 10.30 10.00 12.78 10.30 Inland Freight Equalization Margin 1.72 1.72 3.52 3.52 1.72 Dealer Commission 2.30-2.78 - - Distribution Margin 1.86 1.86 2.23 2.23 1.86 Ex Depot Price 92.60 92.60 91.08 91.08 80.44 Sales Tax 15.74 15.74 15.48 15.48 13.67 Maximum Ex Depot Price 108.34 108.34 106.56 106.56 94.11
Key Risks Volatility in margins an outcome of fluctuating crude oil prices and simpler technology Unfavorable changes in pricing regime removal of deemed duty Prevailing Inter-Corporate Debt impacting throughput levels Exchange rate depreciation What s the outlook Stable
Bibliography 1. Pakistan Energy Year Book : 2012-2013 2. Attock Limited: www.apl.com.pk Product Prices 3. Attock Refinery Limited Annual & Quarterly Financial Statements Sep13, Dec13, Mar14, Jun14 4. BP Statistical Review of World Energy 2013: bp.com 5. US Energy Information Administration 6. Bain & Company: www.bain.com Global 7. zedatawatch: A Brief History of Oil Prices and Middle East Tensions: Fear of a Black Gold Shortage 8. Oil Price History and Analysis: http://www.wtrg.com/prices.htm 9. The Economist: http://www.economist.com/node/18285768 10. ICIS Base Oil Review 2013 11. Argus Base Oil Report -2014 12. Kline & Company 13. Fuels & Lube : http://fuelsandlubes.com 14. Lube Report: www.lubengreases.com 15. Ernst & Young - The international dynamics of shale 16. Ernst & Young -Shale gas in Europe: Revolution or evolution? 17. KPMG -Shale Development: Global Update 18. PricewaterhouseCoopers, the next energy resolution 19. Deloitte University Press- US shale: A game of choices 20. Oxford Business Group 21. http://instituteforenergyresearch.org/analysis/colorado-an-energy-and-economic-analysis/
Analysts Rai Umar Zafar Manager Ratings +92 42 3586 9504 rai.umar@pacra.com Muhammad Siddiq Senior Financial Analyst +92 42 3586 9504 muhammad.siddiq@pacra.com Suffiyan Saleem Financial Analyst +92 42 3586 9504 suffiyan.saleem@pacra.com DISCLAIMER PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.