Pakistan Refinery Limi-ted (PSX: PRL) is a hydro skimming refinery designed to process imported and local crude oil, located on the coastal belt of Karachi, Pakistan. It was incorporated in Pakistan as a public limited company in 1960. The refinery’s current capacity stands approximately at 50,000 barrels per day of crude oil into petroleum products, such as furnace oil, high-speed diesel, kerosene oil, jet fuel, and motor gasoline, among others. The refinery is operating at two locations; the main processing facility is located at Korangi Creek with a supporting crude berthing and storage facility at Keamari.
Shareholding at PRL
Shares of PRL are largely held by associated companies and related parties, and these include oil marketing companies. Pakistan State Oil (PSO) is the parent company of PRL and holds the majority of the 63.5 percent held by the associated companies. The general public which includes foreign and local shareholders hold over 24 percent of PRL’s share; the breakdown of the two is not given in the published accounts.
PRL historical performance
Refineries have had a roller coaster ride in Pakistan primarily because of the age-old technology but also the squeeze in refining margins and the credit crunch in the energy sector in the country. In FY15, the refinery segment continued to grapple with the issues mentioned above along with a sharp decline in crude oil and product prices. This resulted in heavy inventory losses, and PRL saw a 36 percent year-on-year decrease in its topline along with increased finance costs that resulted in after-tax losses. This aggravated the negative equity situation of the firm. However, in FY15 the board of directors announced a right issue to meet the CAPEX and financial requirements of its projects; and PRL commissioned the isomerization plant to convert low-value naphtha into gasoline (petrol), which doubled its petrol production.
In FY16, PRL’s earnings turned positive due to healthy gross refinery margins (GRMs) and the doubling of production of motor gasoline given the full-year operation of the new isomerization unit. This was despite the fact that despite that there was a fall in the topline due to lower oil prices. The right issue in FY15 and the firm’s commissioning Isomerization plant played a key role in reducing the firm's reliance on bank borrowing and increasing operational liquidity.
In FY17, PRL saw its profits improve by more than three times, which also brought some reduction to the negative equity. However, during the year, the refinery faced the deactivation of the catalyst of the isomerization plant, which reduced the firm’s petrol production.
FY18 was again a slow year for PRL as its profit after tax halved despite a healthy growth of 32 percent in the company’s revenues. However, the company overcame the negative equity situation. Refining margins remained depressed during the year, which put pressure on gross profitability. Higher exchange losses due to currency depreciation and pressure on refinery operations due to a decline in furnace oil demand also affected the refinery’s performance in FY18. Also, the catalyst of the isomerization plant could not be operated at full capacity, which resulted in a squeeze in petrol production.
In FY19, the refinery posted a shocking decline in earnings again due to a decline in the petrol prices, depressed refining margins, and steep devaluation of currency locally. As a result, the company incurred a loss of Rs5.82 billion in FY19 as compared to a profit of Rs504 million in FY18. However, during the year, the company approved the Refinery Upgrade Project to meet the regulatory requirement of EURO II-compliant HSD. In the same year. PSO acquired 84 million shares from Shell Petroleum Company Limited, UK, which increased its shareholding in the company to 52.68 percent, making PSO the parent company of PRL.
FY20 was a year of a pandemic where demand for petroleum products was along with crashing oil prices. This meant heavy inventory losses. And PRL’s earnings were adversely affected again. During the year, PRL acquired additional Class B shares from Shell Petroleum Company Limited, UK (Shell), and Chevron Global Energy Inc. (Chevron), which increased the shareholding of the parent company (PSO). PRL incurred an additional loss from the downward adjustment in HSD prices as the company could not install Diesel Hydrodesulphurization Unit (DHDS) to produce EURO II-compliant HSD in time.
FY21 was a recovery year. Growth in revenues for PRL in FY21 emanated from the FY21 last quarter’s topline, where revenues climbed by 80 percent year-on-year, taking overall topline growth to 2 percent for FY21. As for the improvement in profitability, it was due to a better product mix that tilted towards diesel and petrol; also, the exchange gains and change in pricing policy to fortnightly from monthly helped the PRL turn losses into profits. Exchange gains stemmed from the change in the pricing mechanism for petroleum products. Moderate growth in expenses and an increase in other income further supported the operating margins, while declining finance cost due to lower interest rates during the period lifted net margins in FY21.
FY22 witnessed a record profit owing to high GRMs, better inventory management, achieving optimal product mix, and consequent improvement in yields. During the period of rising GRMs, PRL increased throughput and consequently the sale of MS and HSD. The production of HSD was the highest ever recorded in the history of the refinery. PRL’s revenue growth was doubled in FY22 on a year-on-year basis, on the back of higher volumes and prices. Growth in gross profit was over 6 times. The company’s bottom line grew by 35 percent year-on-year. FY22 was a memorable year for PRL as it recorded not only the highest revenues for the company but also the highest-ever gross profits and net profits for the company.
The period under review witnessed record profit owing to high Gross Refining Margins (GRMs), efficient crude planning including buying low-cost Spot cargoes, better inventory management, achieving optimal product mix, and consequent improvement in yields. During the period of rising GRMs the Company increased throughput and consequently the sale of Motor Spirit (MS/Petrol)) and High-Speed Diesel (HSD). In fact, the production of HSD was the highest ever recorded in the history of the Refinery. The above results were achieved despite certain regressive tax measures announced in the Finance Act, 2022, including the imposition of a Super Tax.
PRL in 1QFY23 and beyond
PRL in 1QFY23 posted earnings as compared to loss after tax in 1QFY22. The extraordinarily high refining margins prevalent during the last quarter of FY22 reduced significantly during the 1QFY23. However, the company with a continued focus on optimum crude throughput with a maximum production of premium products (High-Speed Diesel and Petrol), achieved positive results.
The company’s Refinery Expansion and Upgrade Project (REUP) is in full swing, and in this regard work on the Front-End Engineering Design (FEED) is also ongoing. PRL, along with other refineries, is also engaged with the government for the finalization of the Refining Policy.