National Refinery Limited (NRL) conducted its analyst briefing today to present investors with updates on their FY23 results and offer insights into the future outlook:

 More recently, the company, along with other refineries, participated in a collaborative study regarding a Hydrocracking unit (reduce RFO yield, increase value-added product). The contractor hired for the study recommended against it, leading to the decision to discontinue the plan of processing RFO from all five refineries at a single location.

·         Company plans to establish a CCR (continuous catalytic reforming) unit, which will in-turn increase the yield of motor gasoline. Company’s MS production remains sub-par, while production of HSD remains robust and is according to the required standard by OGRA (Euro-V). The cost of CCR unit is estimated to be between US$250-300mn.

·         With regards to the refinery upgradation project, company’s estimated capex requirement stands at US$750mn, which will be financed through a combination of 25%/75% escrow account and other sources (possibly 70:30 debt-equity)

·         Lube refinery-II is currently undergoing a scheduled maintenance, lasting 25-30 days. For this reason, the production of Bitumen/Asphalt (by-product of lube refining) has been impacted.

·         Company’s crude oil payment cycle stands at around 30 days, from the time of loading of crude oil onto the vessel till the payment.

·         Company’s recent introduction of VLSO into product segment is deemed to be positive by the management, given it commands a premium of US$100/ton over HSFO. Production of the unwanted HSFO is expected to be reduced by 30-50% due to this.

·         Regarding the limitation on the utilization of funds collected in the escrow account under the Oil Refining Policy 2023, the management has clarified that the 25% cap pertains to the project cost rather than the total amount collected.

·         With regards to dividend policy for refineries, management stated that the new oil refining policy is silent on the matter. Previously, the policy stipulated that dividend payouts were to be capped at 50% of the respective paid-up capital.

·         Company mostly utilizes the more premium priced sweeter/lighter Arabian crude, which in turn provides the refinery with better yields on the production of HSD.

·         With regards to recent bouts of Russian crude imports by peer refineries, management stated they don’t deem input of Russian crude oil into their mix to be a financially sound decision.

Courtesy – AKD Research