Grupa LOTOS SA

02/10/2021 | Press release | Distributed by Public on 02/10/2021 15:19

Grupa LOTOS S.A.’s new model refining margin

Grupa LOTOS S.A.'s new model refining margin
Report no. 5/20212021-02-10 • 22:14

To facilitate an assessment of the impact of changes in global raw material and product prices on the refinery's profitability, Grupa LOTOS S.A. (the 'Company') resumes publishing the model refining margin and provides an updated margin calculation model, adapted to the new product yield structure and reflecting the increased complexity of crude oil processing following completion of the Effective Refining Project (the 'EFRA Project') as well as a number of minor projects improving crude conversion efficiency, including the Hydrogen Recovery Unit.

The new model refining margin will replace the previous margin, published on June 27th 2016 in Current Report No. 26/2016 (link: https://inwestor.lotos.pl/1185/p,194,i,910/raporty_i_dane/raporty_biezace/korekta_metodologii_kalkulacji_modelowej_marzy_rafineryjnej_grupy_lotos_sa). Due to the EFRA Project start-up process and the changing product structure, the previous model refining margin no longer reflected the refinery's profitability and yield structure, so its publication was suspended in October 2019.

The revised model margin calculation methodology is as follows:

  • the model margin is calculated for a yield structure in the averaged scenario of the refinery operation (without taking into account annual seasonality);
  • the annual throughput was assumed at a level equivalent to 94% capacity utilisation;
  • it was assumed that 100% of the feedstock is Urals crude, whose value is determined as the sum of Dated Brent price and the Brent/Urals spread;
  • the margin calculation is based on a simplified yield structure, with the following price tickers:
    • 23% gasoline (including xylenes, reformate, naphtha) - Gasoline Premium Unleaded, ticker: PU-10PP-ARA,
    • 63% dieseloil (including aviation fuel, light fuel oil, base oils) - Diesel, ticker: ULSD10-C-NEW,
    • 8% heavy fuel oil (including bitumen, petroleum coke) - Fuel Oil 3.5%, ticker: HFO-ARA,
    • 6% of the feedstock is the refinery's own consumption;
    • in the calculation, the margin was reduced by the estimated cost of natural gas (the main fuel used in refining processes)used per barrel of crude processed, calculated as the product of 0.1 and the gas index for the Day-Ahead Market of the Polish Power Exchange (TGEgasDA index), converted into USD/MWh.

The mathematical formula for Grupa LOTOS S.A.'s model margin is as follows:

Model refining margin [USD/bbl] = revenue (products from 94% of crude processed = 23% gasoline + 63% diesel oil + 8% heavy fuel oil) - costs (100% of crude processed + cost of natural gas used)

The model is based on simplified assumptions, i.e.:

  • it aggregates yields in three key product groups,
  • it does not account for differences in the prices obtained by Grupa LOTOS S.A. on different geographical markets, including on the Polish market (premia and discounts vs benchmark),
  • it disregards the different types of crude used as feedstock for the refinery.

The margin model only presents a hypothetical profitability of the refinery operating within a specific technological setup, based on prices from NWE markets published by Refinitiv. In consequence, the presented margin amount does not represent the actual refining margin generated by Grupa LOTOS S.A.'s refinery, whose operations are subject to seasonality and optimisation.

The monthly, quarterly, annual and daily (i.e. a five-day moving average) model refining margin
will be published on the Company's website in the Investor Relations section.

Legal basis: Article 17(1) of MAR - Inside information