By Amanda Jordan and Andrew Davis
Aug. 7 (Bloomberg) -- Saras SpA, owner of the Mediterranean region’s biggest oil refinery, posted a 77 percent drop in second-quarter profit and said processing margins will remain “challenging” for the rest of the year.
Net income fell to 58.8 million euros from 251.5 million euros a year earlier, the Milan-based company said today in a statement. Saras reported a loss of 18.3 million euros when earnings were adjusted for inventory changes, versus a profit of 96.7 million euros. That’s wider than the 17.5 million-euro loss estimated by Credit Agricole Cheuvreux SA.
The global economic crisis has eroded demand for fuels, squeezing profit margins for refiners. About half the output at Saras’s Sarroch refinery on the island of Sardinia is middle distillates such as diesel and gasoil, which suffered the “most striking contraction” in the period, the company said. Planned plant upgrades also led to lower operating rates.
“Saras carried out a heavy cycle of planned maintenance in the refinery, with a negative impact on the results of the refining segment,” the company said in the statement. “In the near-term, the refining outlook will remain challenging.”
Saras dropped as much as 3.1 percent to 2.0225 euros in Milan trading, and was at 2.0575 euros as of 9:24 a.m. local time.
Fatal Accident
Saras carried out maintenance on a crude distillation plant and several conversion units in the period. Work was delayed after three contractors died on May 26 during maintenance on a mild hydrocracker, which makes diesel. The unit was impounded pending a police probe and was released on June 12.
The company processed 19.7 million barrels of crude in the second quarter, down 28 percent from a year earlier. The refining margin, or the profit from turning a barrel of oil into fuels, was $1.40 a barrel, compared with $11.30 a year ago.
Full-year refinery runs will be reduced to between 13.8 million tons and 14 million tons, Saras said, citing the maintenance and delays caused by the accident. That compares with an earlier estimate of 14.4 million to 14.7 million tons. The unplanned extension of second-quarter work into July will hurt third-quarter earnings, it said, adding that only “minor” maintenance is planned for the remainder of the year.
Sales fell 54 percent to 1.12 billion euros in the second quarter following a decline in oil-product prices from record- highs a year earlier, according to the statement.
“Dismal demand has led to large inventories buildups, and diesel margins are expected to stay under pressure until strong economic recovery will start to materialize,” the company said. “However, a recent string of ‘green shoots’ in various countries across the world is leading to expectations that the worst may be over.”
The Sarroch refinery can process 300,000 barrels of oil a day, or 15 percent of Italy’s total, according to the company’s Web site. The facility’s integrated gasification combined-cycle, or IGCC, power plant will also undergo scheduled maintenance in the fourth quarter, it said.
To contact the reporters on this story: Amanda Jordan in London at ajordan11@bloomberg.net; Andrew Davis in Rome at abdavis@bloomberg.net
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