Petroplus to File for Insolvency


Petroplus Holdings AG will file for insolvency, and the refiner was granted administration orders in the United Kingdom. Petroplus said Friday it would consider selling its Petit Couronne refinery, which has a 7,300 barrels per day base oil plant.

The company yesterday cited failed negotiations with its lenders to reopen credit lines. The lenders filed acceleration notices, and Petroplus went into default under its $1.75 billion in notes and bonds.

Petroplus said it will initially file for insolvency in Switzerland, where it is headquartered. Its subsidiaries will file for insolvency in their respective countries. The company has refineries in the United Kingdom, France, Belgium and Germany.

We have worked hard to avoid this outcome, but were ultimately not able to come to an agreement with our lenders to resolve these issues given the very tight and difficult European credit and refining markets, Petroplus CEO Jean-Paul Vettier said.

Subsidiaries Petroplus Refining & Marketing, which owns the refinery in Coryton, U.K., and Petroplus Refining Teeside, which owns the Teeside Marketing and Storage facility, applied for and were granted administration orders. A court appointed Pricewaterhouse Coopers administrator for the two subsidiaries’ assets.

On Jan. 20 Petroplus said it would initiate a sales process for its Petit Couronne refinery and related marketing business. The Petit Couronne base oil plant has 6,300 b/d of API Group I capacity and 1,000 b/d of Group III capacity. The refinery has 550 employees.

The company said it intended to complete a consultation process in the coming months, and would consider all other possible options for Petit Couronne. By press time, Petroplus did not reply to Lube Reports inquiries about how the insolvency filings would impact those plans.

In December, Petroplus announced the temporary economic shutdowns of its refineries in Petit Couronne, along with Antwerp, Belgium, and Cressier, Switzerland, citing limited credit availability and Europes economic climate. Labor actions at the Petit Couronne refinery were restricting lifting of products, Petroplus said last Friday.

John Leavens, a United Kingdom-based senior consultant with Purvin and Gertz, said it is noteworthy Petroplus continued to run its refineries in Coryton, U.K., and Ingolstadt, Germany, while instituting the temporary economic shutdowns of its refineries in France, Belgium and Switzerland. It shows you what the pecking order is for their operations in terms of how profitable those refineries must be, he pointed out.

Leavens said the issue now could be more about what Petroplus is going through in terms of financial difficulties than the Petit Couronne refinery itself.

Its one thing to have an economic shut down for a short period of time, while the margins are poor, for a few months, he said. However, the longer that goes on then its much more difficult to get the plants up and running again. In addition, if you need a huge credit facility in order to buy crude oil to continue operations and this gets withdrawn from you – then you dont have the option to continue operation. Even if the refinery is cash positive, if they are unable to buy crude oil to put into it, then they cant run it. So Petit Couronnes biggest immediate issue may be the financial position of Petroplus itself rather than the long term viability of the refinery.

In October, Petroplus outlined plans to reconfigure the Petit Couronne refinery to cut costs, including shutdown of its base oil plant. For more details, read the Nov. 9, 2011 Lube Report article.

Pressure to close API Group I base oil plants is expected to continue. Clearly in the medium to long term, Group I base oil plants in Europe and North America – probably more so in Europe – are going to be under pressure from the fact theres a decline in the market in Europe, and there are a lot of plants around, Leavens said. So theres going to be pressure for closure. The most efficient Group I plants, which are likely to be larger, and also selling their by-products into niche markets, are likely to be the ones that survive. Theyre not all going to close, but chances are, some will.

He noted that Northern France has many refineries, and that the northern European market has an oversupply of gasoline.

If youre making an excess of gasoline and having to export it in a market that is already oversupplied then that has a negative impact on refinery margin. Petit Couronne is likely to be faced with this situation, Leavens said. He added that the flip side of that is that the Petit Couronne refinery contributed substantial volumes of middle distillates, such as gas oil, diesel and jet fuel into the region, and these products continue to be in demand. However, the economics of cat-cracking refineries like Petit Couronne running predominantly sweet crude were particularly challenging in 2011.

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