Oil Refineries Limited (Oil Refineries), an oil refinery company, said that its board of directors has restated its grant to set up a hydro cracking unit at the Haifa refinery for $500 million. The hydro cracker, whose primary products will be diesel oil and kerosene (jet fuel oil), will be constructed to pump 25,000 barrels per day and is projected to be operational by early 2012.
The lower cost of $500 million, compared with the granted approved $670 million, primarily follows the decrease in equipment costs and the taking advantage of opportunities.
Once launched, the hydrocracker is projected to contribute to raising the refinery’s Nelson complexity index, which presently stands at 7.4- 9, implying as to the higher added-value achievable from each barrel of oil.
The board of directors instructed Oil Refineries to obtain long term financing, part of which backed by the export credit agency, under which the company will get needed funds to acquire main equipment components from oversees’ suppliers. The company already increased part of the required financing for the strategic plan in December 2007.
Yossi Rosen, Oil Refineries’ chairman of the board: The Board of Directors’ decision to invest in the hydrocracker is one of the focal points of Oil Refineries’ strategic plan. The current macro-economic crisis and changing environment created opportunities for the Company’s management to leverage its negotiation capabilities with equipment manufacturers in order to secure funding for the hydrocracker’s construction and to substantially reduce the Hydrocracker’s investment. This project is, without a doubt, a project of national importance which will supply employment to thousands of employees in the coming years and its construction will contribute to the employment in the region, and to the country as a whole.
Yashar Ben-Mordechai, Oil Refineries’ chief executive officer added: Upon activation, the hydrocracker will enable us to produce higher added-value products from each barrel of oil, therefore substantially increasing the complexity of the Haifa refinery. The unit will raise our flexibility in terms of ability to choose the raw materials and product slate, better adapting them to the changing markets. Throughout the years of volatile and changing markets it has been proven that refineries with high complexity and flexibility are those able to successfully take advantage of change. This project is expected to improve the Company’s competitive standing in the Mediterranean fuel market and, without a doubt, will contribute substantially to strengthening the Country’s economy as a whole and the Haifa bay region in particular
Ben-Mordechai added that the Project is expected to contribute between $150 – $200 million EBITDA per annum, with an expected Net Present Value (NPV) of about $1 billion.
All through the last 12 months, Oil Refineries management and board of directors have been evaluating the spending in the project in light of the global macroeconomic crisis, and obtained many economic and business opinions supporting the projects’ investment viability. However, Oil Refineries’ board of directors conditioned the investment on the fact that the projected cash flow required to finance the project as well as the project’s financial liability through 2011, will not compromise the company’s ongoing activities.