Capital Expenditure EURO 1.5 billion since the listing on the Athens Exchange.

The underlying philosophy of MOTOR OIL as a means to achieve organic growth is the Company’s commitment to the strategy of “continuous investment”. The capital expenditure since the listing of the Company shares on the Athens Exchange in 2001 amounted to EURO 1.5 billion. 

Through the Company’s Refinery Expansion Program many investment projects were implemented, the major and most important ones of which were completed early in the cycle. 

The two investment cycles 2003-2005 and 2008-2010 absorbed about 40% of the cumulative investment expenditure already mentioned. 


Investments Plans


During the three year period 2003-2005 the construction of the EURO 350 million Hydrocracker Complex was completed which enabled the Company to produce the new “clean” fuels according to the European Union specifications of 2009 (Auto Oil II). Following the addition of the Hydrocracker the production capacity of the Refinery increased with reference to Diesel of which there is a shortage in Greece and generally in Europe. The additional Diesel production replaced Refinery imports while the particular Complex provided greater flexibility in the maximization of either Diesel or gasoline output according to seasonal demand. 

The Hydrocracker was put in operation in November 2005. 

Within the scope of the Hydrocracker project and through a series of upgrades, modifications and peripheral projects the Refinery’s environmental terms improved.  

During the three year period 2008-2010 the project for the construction of the EURO 200 million new Crude Distillation Unit was completed. The processing capacity of the new CDU is 60,000 barrels per day and following its installation, the Refinery’s crude distillation capacity increased by 50% while its total production capacity increased to over 10 million metric tons per annum or 185,000 barrels per day. As a result, the Refinery of the Company became the largest refinery in Greece.

Additional benefits for the Company following the installation of the new CDU involve the optimization of crude supply due to the ability of the Refinery to process a wider range of crude types and, the uninterrupted operation of the Refinery during scheduled maintenance works. 

The new Crude Distillation Unit was put in operation in May 2010.  

Apart from the projects described above, significant amounts were absorbed by the upgrading of the lubricants complex (185,000 MT annual production capacity), the Refinery power cogeneration plant (its installed capacity increased to 85 MW from 68 MW securing that the Refinery remains energy autonomous), storage premises (tanks for LPG, fuels and lubricants) the aggregate capacity of which reaches 2.5 million cubic meters, the construction of the Refinery Truck Loading Terminal operating since 2004, the construction of new Sulfur Recovery Units, the Distributed Control System (DCS), the Advanced Process Control (APC) system, the revamp of Waste Water Treatment units etc. 


The investment risks that the Company faces are summarized hereunder:

·     Changes in the Price of Crude Oil

As it is explained in the respective sections below, changes in the price of crude oil have an effect on a) the inventory valuation (where increasing crude oil prices have a positive effect on the Company results) and, b) the refinery margin.

·     Changes in the Refinery Margin

The operating results of the oil refining and trading industry are greatly dependent upon the volatility of the refinery margins. The Company’s refinery margin is defined as the differential between the price of petroleum products and the price of raw materials (i.e crude oil). Therefore, the availability and the prices of the various types of crude oil and other raw materials, along with the demand for petroleum products and the changes in the existing refining capacity in Europe, affect the refinery margins.

·     Changes in the Trading Margin

Apart from the crude oil refining and the subsequent wholesale of the refined petroleum products, the Company engages in trading activities as it buys finished petroleum products in order to resell them to its customers.  The trading margin is in general lower than the average refinery margin and its key determinants are the international product prices, the purchase price, and the re-sales price.

·     Changes in the Exchange Rate

The Company's accounting books are kept in Euros according to the International Financial Reporting Standards. Most of the Company’s transactions, however, are conducted in US Dollars, the basic currency of the petroleum industry. More specifically, the Company effects USD payments for crude oil purchases and uses the international USD finished product prices as a basis to determine the wholesale prices for its refined products. Conversely, most of the Company’s operating expenses (e.g. salaries) are in Euros. The Company has adopted a “natural hedging” policy matching euro and USD denominated assets with respective liabilities in order to minimize foreign exchange risk. As a result, the Company´ s Earnings Before Interest Tax Depreciation and Amortization (EBITDA) (after taking into account the extraordinary income and expenses) are not influenced significantly by the fluctuations in the Euro / USD parity.

·     Inventory Valuation

For inventory valuation the Company uses the monthly weighted average method, which values inventories at the lowest price between purchase price (based on the method of average weighted cost) and the current liquidation price. The closing balance of the inventories, presented on the Assets side of the Balance Sheet, influences the Cost of Sales in the Income Statement. During periods of falling prices of crude oil and petroleum products, this valuation method results in a lower value of the inventories, given that the products sold are replaced by others valued lower, thus increasing the cost of sales. On the contrary, during periods of increasing prices of petroleum products, the above method leads to higher value of the inventories, since the products sold are replaced by others valued higher, thus reducing the cost of sales and increasing the gross margin. The closing balance of the inventories is recorded in Euros and therefore it is affected by changes in the Euro / USD parity. It must be stressed that in order to minimize the effect the year-end closing balance of inventories may have on its Accounting Financial Statements, the Company is committed to the policy of always keeping the level of inventories as low as possible. 

·     Interest Rate Changes 

The Company financing needs for working capital purposes, especially during periods of high crude oil and oil product prices, lead to additional bank borrowing which in turn creates an additional burden through interest rate payments. An interest rate drop has a positive effect on Company earnings while an interest rate rise increases the cost of borrowing. It is noted that the Company has the ability to borrow from the international capital markets on extremely favorable terms.

·     Seasonality - Climate Conditions

The earnings of the Company do not follow a seasonality pattern although the demand for certain products is dependent upon climate conditions. More specifically, the demand for heating diesel is higher during the first and last quarter of each year. Consequently, heating diesel sales are relatively higher during those years characterized by low-temperature long-duration winter periods and in such cases the contribution of heating diesel to the aggregate Company turnover is greater compared to the rest of the year. Furthermore, the demand for gasolines is relatively higher in the second and in particular the third quarter of each year (summer period) and therefore their contribution to the aggregate Company turnover is greater compared to the rest of the year. Nevertheless, the refinery of the Company is one of the most technologically advanced ones in the region of Southeast Europe, endowed with the capability to produce the complete range of oil products and the flexibility to optimize the product mix to suit customer needs, thus minimizing any effects the climate conditions may have on the demand for certain products.

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