Moroc­can re­fin­ery’s debts point to oil sec­tor lend­ing woes

Kuwait Times - - BUSINESS -

LON­DON: When Morocco’s only oil re­fin­ery sus­pended pro­duc­tion in early Au­gust due to fi­nan­cial dif­fi­cul­ties, it owed $450 mil­lion to trad­ing houses, in­clud­ing Glen­core, Vi­tol and BB En­ergy, ac­cord­ing to traders and re­fin­ery sources fa­mil­iar with the sit­u­a­tion.

While the amount is rel­a­tively small com­pared with the bal­ance sheets of large trad­ing houses, it un­der­scores sim­mer­ing trou­ble in high-risk, high-mar­gin de­vel­op­ing re­gions that did not in­sure them­selves against the steep de­cline in oil prices. The idled re­fin­ery - the 200,000 bar­rel per day (bpd) So­ci­ete Anonyme Maro­caine de l’In­dus­trie du Raf­fi­nage re­fin­ery, known as Samir - is a fur­ther sign of emerg­ing risks now that oil prices ap­pear set to stay lower for longer.

“They had a very large in­ven­tory of crude oil at a very high price,” said Mark El­liott, chair­man of Africafo­cused con­sul­tancy CITAC. “And they were not hedged.”

Samir re­ported a first-half loss of roughly $223 mil­lion this year, fol­low­ing a $354 mil­lion hit it took at the end of 2014, due pri­mar­ily to losses on in­ven­tory when crude oil prices plum­meted.

El­liott said that the bulk of the African oil in­dus­try, from re­finer­ies to ma­jor pro­duc­ers such as Nige­ria and An­gola, also do not hedge to pro­tect them­selves against price fluc­tu­a­tions.

The struc­ture of the debt owed by Samir was not im­me­di­ately clear. Sources said some traders were owed oil prod­ucts, while oth­ers had given Samir a mix of their own money and money bor­rowed from banks - shield­ing the trad­ing house from cash flow prob­lems re­lated to the fall­out.

Glen­core, Vi­tol and BB En­ergy all de­clined to com­ment. Sources at Glen­core and Vi­tol said the two com­pa­nies had nec­es­sary risk pro­ce­dures in place when deal­ing with Samir.

But Samir’s un­ex­pected idling un­der­scores a prob­lem for these types of pre­pay­ment deals through which com­pa­nies and coun­tries who need cash upfront get their fi­nanc­ing from traders and banks while pledg­ing exclusive ac­cess to oil or re­fined prod­ucts.

PRICE SHOCK

Last month, Vi­tol’s Chief Ex­ec­u­tive Ian Tay­lor told the Reuters Com­modi­ties Sum­mit he was wor­ried about the rise of non-per­form­ing oil in­dus­try loans and govern­ment obli­ga­tions in the volatile com­modi­ties en­vi­ron­ment.

“I am ac­tu­ally in­creas­ingly con­cerned by that,” Tay­lor said. “The stress of $40, or $50 (oil), takes time to come through the sys­tem. And it’s start­ing to come through the sys­tem.”

“This is an area where the in­dus­try has got to be re­ally care­ful,” Tay­lor said, adding that he ex­pected banks to be­come “much tougher” on emerg­ing mar­kets. As Morocco’s only re­fin­ery, Samir would have ap­peared to be a safe bet, with a cap­tive mar­ket that con­sumes some 300,000 bpd of petroleum prod­ucts.

But the re­fin­ery, con­trolled by Saudi’s Cor­ral Petroleum Hold­ings, overex­tended it­self with a $1 bil­lion up­grade to pro­duce bet­ter qual­ity fuel, traders said. Then crude oil prices crashed, which was good for re­finer­ies in nearly ev­ery other re­gion - but less so for Samir.

Samir it­self did not re­turn re­quests for com­ment. Else­where, im­porters, many backed by trad­ing houses, are owed some $2 bil­lion by Nige­ria’s govern­ment in back pay­ments for gaso­line sub­si­dies.

Other coun­tries, such as Venezuela, are re­ly­ing on trad­ing desks of oil ma­jors such as Sta­toil, Shell and To­tal and traders like Vi­tol, to im­port crude oil.

As for Samir, three months af­ter an­nounc­ing their im­mi­nent restart, a cargo of crude oil that ar­rived in Au­gust re­mained parked off the shores of Mo­ham­me­dia, ac­cord­ing to traders and Reuters ves­sel track­ing. The roughly $5 de­cline in oil prices alone since the cargo ar­rived in mid-Au­gust means the cargo lost nearly $4 mil­lion in value - not count­ing the cost of the parked ves­sel it­self.

Samir is work­ing on a fresh in­fu­sion of cap­i­tal, and has said it will restart. But Morocco’s tax ad­min­is­tra­tion seized its bank ac­counts in pur­suit of a $1.3 bil­lion tax claim, mak­ing a restart or debt re­pay­ment even more dif­fi­cult.

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