Covid-19 impact ‘could’ signal end of oil refinery
A WORST case scenario fall-out from the Covid-19 pandemic could be the loss of Lindsey Oil Refinery, the lead director has warned.
A note of concern has been sounded for the Humber Bank plant, with a flagging that there would be a “material uncertainty” of it continuing as a going concern if the sale process falls through and support isn’t maintained from Paris, should conditions continue or exacerbate.
The company is in the midst of a takeover by Prax Group, announced in July, having been severely hit by the measures taken to combat the spread of coronavirus.
An employer of more than 400, with a strong contractor supply chain, it has revealed it is reliant on funding from the wider Total Group to meet current liabilities.
A £170m loan was secured in April, and is due to expire on February 28 or at the completion of the deal. In his strategic report accompanying the results for 2019 just published and signed off on December 1, director Thomas
Behrends said: “During 2020 the results of the company are significantly adversely affected by the Covid-19 global crisis and the significant oil price falls.
“The restriction on movement and fall in air travel, significantly reduces the demand for the refined products made by Total Lindsey Oil Refinery Ltd.”
Outlining liquidity of £101m and a further £95m in undrawn facilities as of September, he told how cash flow forecasts were prepared for a 14 month period “taking account of severe, but possible downsides scenarios”.
He said: “Due to the high level of uncertainty associated with the Covid-19 pandemic, those down
scenarios include the possibility of further restriction measures, a weak demand for petroleum products or changes in oil price, which could impact the future refining margins and the company’s liquidity requirements.” Stating it is unable to assess how an acquirer would operate and finance the company - and that there was “no reason to believe the company will not be run as a going concern,” Mr Behrends said: “If the sale to Prax Group does not complete, in the unlikely event that these downside scenarios translate, the directors will take additional mitigating actions, including seeking an extension of the current group funding facilities”. And while he has a “reasonable expectation that an extension would be provided,” he said: “These circumstances represent a material uncertainty that may cast a significant doubt on the company’s ability to continue as a going concern if ongoing financing is not provided from its shareholders for the company to meet liquidity requirements in severe, but plausible downside scenarios”. Of the impact Covid has had at North Killingholme, Mr Behrends said increases in working capital and erosion of profits are expected, “however as length of restrictions is unknown, it is not practical to provide an estimate on the future effect on the financial statements”.
And on the deal with Prax, he said: “The directors of the company will reconsider the valuation of the company’s tangible assets in conjunction with prevailing market conditions, which may result in an impairment if the recoverable amount is lower than the carrying value.” For 2019, with the financial year aligned to the calendar, LOR returned a £2m profit on a £2.8bn turnover, with output affected by significant planned maintenance work. The process capacity rate fell from 81 per cent in 2018 to 61.8 per cent. Upfront costs had hit profitability in the previous year, with LOR recording a £10m loss in 2018.
A spokesperson for Total said: “Total continues to work with Prax on closing the agreement to sell the Lindsey Oil Refinery.”
A Prax Group spokesperson said: “Prax continues to work with Total on closing the agreement to sell Lindsey Oil Refinery.”