Zarubezhneft is ready to engage in oil refining in the Balkans

The oil state company wants to share stakes in the Bosnian oil refining assets in exchange for competencies.
Zarubezhneft is ready to reduce its share in the projects of the Brod Refinery and Modrica Plant (an oil refinery), the company's CEO Sergey Kudryashov said. "We are thinking about attracting a partner, since our main task is projects in upstream", - quotes his words "Interfax". Concrete talks have not been held yet, he stressed. "The company looks at various forms of cooperation within Bosnian enterprises," a company representative confirmed to Vedomosti. As far as the state-owned company is ready to reduce its share in these enterprises and how much it plans to attract money as a result of the transaction, he did not specify.

The Brod refinery and Modrica MPZ are Zarubezhneft's only oil refineries, both in the Republika Srpska (an autonomous region of Bosnia and Herzegovina). The direct share of Zarubezhneft in them is 80 and 75.7%, respectively, from the materials of the Russian company. Another 16.3% of Modrica MPZ is owned by a network of 86 filling stations in this region of Nestro Petrol JSC (effective share of Zarubezhneft is 76%).

"Modrica", "Brod" and a network of regional gas stations are a single complex where the company is ready to attract partners, "Vedomosti's interlocutor, close to Zarubezhneft, explains. According to him, now the company was able to bring the company to a stable level of operational efficiency and the partner needs it to further increase both profitability of enterprises and production competencies. Last time, about attempts to find a partner in these projects, Zarubezhneft reported in mid-2015, but then the assets were unprofitable.

"Broad" by the end of 2016 (more relevant data is not available) processed 867,000 tons of oil, the yield of light oil products was 58.7%. Modrica processed 40,500 tons of oil distillate and produced 13,000 tons of oils and lubricants. It is expected that by the end of 2017, the indicators will remain approximately at the same level, the source of Vedomosti, close to the company, says.

EBITDA of Modrica MPZ by the end of 2016 amounted to 5.9 million euros with operating costs of 7.1 million euros. Data on profitability of production of fuels Zarubezhneft does not disclose.

It is more profitable to process oil in Europe than in Russia. The margin of the standard refinery in Russia in the first quarter of 2018 is on average $ 2.4 per barrel. processed oil, in Europe this figure is higher - $ 6.2, Lukoil discloses in its presentations. In May, the average for Europe fell to $ 5.77 after the price of oil rose to $ 80 per barrel, according to EIA. The marginality of refining the Brod refinery can be affected by the "non-optimal location of the plant" and the "lack of access to the railway infrastructure" - so is the asset in Zarubezhneft's materials.

"If the margin of the Brod refinery is about $ 5 per barrel. oil, EBITDA of the company may be about 30 million euros. The usual valuation of such a company in the transaction is 5 EBITDA, "said Raiffeisenbank analyst Andrei Polishchuk. Taking into account 86 filling stations with their average European profitability and MPZ, the total value of assets for the transaction can be estimated at 220 million euros, Polishchuk said. Thus, Zarubezhneft can raise up to 75 million euros with a decrease in its share in them without losing control.

Until 2014 because of the price of oil, almost all European processing was in a systemic crisis, says Aton analyst Alexander Kornilov. Now the oil refining margin in Europe as a whole is about $ 5-6 per 1 barrel, he notes. Reduce the share and attract partners to working, highly profitable European oil refineries Zarubezhneft could only be needed to attract financing to increase the depth of processing, Polishchuk assumes.