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17-Nov-09
Fitch says European oil refiners under considerable cash flow pressure
Fitch Ratings says Europe’s oil refining sector is experiencing considerable cash flow pressure due to a cyclical trough, particularly with regards to depressed refining margins and low refinery utilisation rates.
Fitch expects 2009 to be one of the weakest years in the past ten years for operating cash flows for European refiners.
The agency’s outlook for the refining sector is negative due to the cyclical industry’s significant near- to medium-term challenges, Fitch said in a new report.
Fitch believes the current environment, which has affected refining in Europe, the US and Asia due to a combination of depressed demand and a glut of global refining capacity, is increasingly challenging as unlike upstream exploration and production (E&P) activity, which has seen a modest recovery of the oil price since Q209, conditions for refiners worsened considerably in H209 and there are no signs of a recovery yet.
In the first nine months of 2009, complex and well-positioned European refineries reported an EBITDA decline by as much as 50% to 60% y-o-y, while smaller and less efficient ones posted negative EBITDA in what the agency regards as a low point in the cycle within its rating through-the-cycle approach. Fitch believes that a marked deterioration in the credit metrics of refiners that entered 2009 with higher financial leverage (net debt to EBITDA above 2x) could eventually lead to rating downgrades, as several companies have a Negative Outlook or are on Rating Watch Negative.
[ Despite disappointing earnings, analysts at Credit Suisse on Nov 3 upgraded Royal Dutch Shell (RDS.A) from "underperform" to "neutral." The target price was raised from $11.5 to $16.]
On a positive note, results for the first nine months of 2009 show that refining companies with solid fuel marketing operations (retail sales) reported a lower deterioration in cash flows than pure refiners as fuel marketing margins have proved more resilient to the economic downturn than refining margins. Examples of more resilient marketing operations at R&M companies include Poland’s largest R&M company, Polski Koncern Naftowy ORLEN S.A., Turkey’s sole refining company, Turkiye Petrol Rafinerileri A.S. (TUPRAS, the Romanian operations of The Rompetrol Group N.V. and Turkey’s largest fuel distributor Petrol Ofisi A.S.
For Fitch’s latest full report see Depressed Mid-Term Outlook for Global Refining.
Posted at 15:30 in External Blog | Permalink | Top
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