Message to the Shareholders

Transcription

1 Message to the Shareholders Dear Shareholders, The Board of Directors is pleased to submit to its shareholders the 35 th Annual Report on the performance of the Independent Petroleum Group (IPG) and its operations for the year. During, the Company realized losses for the first time since 1996, amounting to approximately KD6.06 Million. The factors leading to the Company s realization of these losses are numerous, most of which came about from oil trading activities and the sharp drop in the International Financial Markets. The tense political conditions brought about by the so-called Arab Spring revolution in the largest oil producing region in the World caused great instability in the oil and International Stock Markets. High volatility in the prices of crude oil and petroleum products made it extremely difficult for the Marketing Department to forecast and avoid such losses. For instance, the price of diesel dropped in just two days during early May, from $980/ton to $880/ton, creating a situation where it was extremely difficult to avoid trading losses even with the employment of hedging mechanism. Upon the start of the Libyan Revolution, one of the Company s ships which had docked at Ras Lanuf Port to load a cargo of Kerosene that was already purchased from Libya had to return empty owing to war conditions resulting in a loss of approximately KD690,000 as alternate supplies had to be arranged at short notice to honor the commitment. The Company s reserve of oil products in the storage terminals in the Kingdom of Saudi Arabia and other Middle Eastern regions increased tremendously in view of the sharp drop in demand in Yemen and East Africa. As a policy, IPG has always hedged its stored products, but the unusual conditions of the markets during the year resulted in some losses in the hedging operations itself, in addition to the cost of maintaining products in storage. Although oil prices ended higher, that was not enough to recover the storage costs and the hedge insurance losses. The average OPEC crude oil basket of prices during was $107.47/Bbl compared to $76.45/Bbl in In view of the political turmoil in countries such as Yemen, Egypt, Syria, Sudan and Iran, overall oil consumption declined. Besides, the global financial scenario forced some countries, such as those in DOW Movement During S & P 500 Movement During 6

2 East Africa to decrease it s oil consumption. As a result of the combination of rising oil prices and the international sanctions against countries such as Iran, Syria and Sudan, marketing opportunities in these countries decreased drastically. Disorder in the Financial Markets in the Euro-zone, USA and Far East continued. In view of the disagreement between the Democrats and the Republicans over the US debt ceiling, the US lost its AAA rating in August, triggering a sharp drop in the global financial markets by approximately 12%. The European debt crisis continued without a clear and decisive solution raising increased concern over the fate of the European banking system and the future of the Euro. The above factors caused sharp fluctuations in the stock, bond, currency and commodity markets, especially oil, leading to unrealized losses in its investment portfolios (managed by three International Banks) of approximately KD2.3 Million. A notable achievement during mid- was the announcement of the Arbitral Award in favor of the Company by ICC s International Court of Arbitration in Paris against the Eritrean Government, Ministry of Energy & Mines and Petroleum Corporation of Eritrea for an immediate settlement of the full outstanding amount of approximately KD19 Million along with the interest accrued. In this context, the Legal Department initiated all necessary steps in different jurisdictions to enforce the award. During the year, the Company performed fair valuation of its 11.11% investment in Vopak Horizon Fujairah Limited, UAE, in accordance with the requirements of International Financial Reporting Standards. The fair value of the investment was assessed at $82.8 Million as at 31 December including the additional capacity of 606,000 cubic meters under Phase VI expansion plans. The projected cash flow was based on the actual storage capacities contractually committed by various customers for five years. Based on the carrying value of $30.8 Million as at 31 December 2010, the difference of $52 Million has been recognised as fair value reserve under equity during the year ended 31 December. The Company strongly believes that many of the negative factors mentioned above are not expected to be repeated during Despite the losses of, the Company s financial conditions remain strong as the value of the total shareholders equity increased from KD66.87 Million at the end of 2010 to KD70.72 Million at the end of. Summary of the Company s results for Marketing and Trading activity in the Gulf and the Red Sea Close cooperation continued with many National Oil Companies such as ARAMCO of Saudi Arabia, Bahrain National Oil Company, Abu Dhabi Oil Company UAE, SOMO Iraq, the Egyptian General Petroleum Company, Aden Refinery Company Yemen, Sudan Oil Company and Ethiopian Oil Corporation. Sales and purchase contracts for various petroleum products were concluded with these Companies during. Contracts were also executed with Major and International Oil Companies such as SHELL, ExxonMobil, BP, TOTAL, GUNVOR Holland and PETCO Malaysia. By the end of the year, the cooperation arrangement with Morgan Stanley (as managers) was terminated. This cooperation arrangement resulted in a loss of approximately KD1.71 Million during. 7

3 Trading Activity in East Africa Competition increased in East Africa in as more International Oil Trading Companies entered strongly into this area. Further, the rise in prices led to undermine the purchasing power of these African countries and limit their imports to barely satisfy their essential needs. Despite these difficult conditions, the Company achieved a sales volume of approximately 350,000 tons of products to Zimbabwe, Mozambique and Malawi. The Company s offices in Maputo, Harare and Cape Town rendered valuable support to the shipping, storage and supply operations of products to the customers in the above region. IPG Equity Movement (K.D Millions) Trading activity in India and the Far East Due to lack of correlation between the prices in the Arabian Gulf and other geographical areas (such as Europe), the economics of buying oil products from Reliance Company of India were not similar to what they were in Therefore, the contract with this Company was not renewed in. The situation in the Far East was not any better as the sales in Singapore slumped to a mere 84,000 tons. Trading activity in the Mediterranean Sea and the Black Sea The Company s sales to Uniterminals Company, Lebanon (owned 50% by IPG), increased to approximately 625,000 tons of Gasoline and Diesel. These quantities were purchased from the Black Sea and Greece. The total volume of Gasoline, Diesel and Kerosene traded in the Mediterranean Sea and the Black Sea amounted to approximately 1.76 Million tons, which were marketed to Egypt, Turkey and other International Oil Companies in addition to Lebanon. Return on Average Equity (ROE) Operating Profit 8

4 Storage of Petroleum Products The total storage capacity of the Company, owned and leased during amounted to approximately 613,000 cubic meters. This storage volume will increase when Horizon Tangiers Terminal S.A. (Morocco) commences operations during the first quarter of The Company has a storage space of about 87,000 cubic meters in this new project. The volume of storage available to the Company in Arab Tank Terminal (ATT) in Yanbu, KSA, is approximately 269,000 cubic meters. Pipelines connecting the storage project in Yanbu with the refiner (SAMREF), owned by ARAMCO and ExxonMobil, are already built and completed. Details of the operational agreements between both parties are expected to be finalized during the first quarter of The port efficiency of ATT will increase following the operation of these pipelines. Debt to Equity (%) Book Value Per Share (FILS) Shipping In addition to the tankers leased from D&K Holdings LLC, (a UAE Company fully owned by IPG), the Company continued leasing additional tankers to meet its shipping requirements. The total number of tankers leased during on spot charter was 74. D&K Holdings LLC (through finance by Deutsche Verkehrs Bank DVB) purchased a new oil tanker with a capacity of approximately 45,000 tons. It has been named D&K Yusuf I. Alghanim in honor of the late Yusuf Ibrahim Alghanim, one of the founders of the Company and the first Chairman of its Board of Directors. The price of this tanker was about $36 Million. Furthermore, an old single hull tanker, namely Gulf Nomad, was sold during as its acceptance at various ports had become difficult. The Company sustained a loss of approximately KD715,000 as a result of this sale. Net Profit Net Result From Oil Market Operations 9

5 Business & Projects Development IPG continued to implement its income diversification strategy by developing logistical investments (storage terminals & pipelines) that not only support its marketing activities but are also economically viable on a standalone basis. Efforts continue and progress is being made, in cooperation with other strategic partners (National Oil Companies, Independents and Local/International Institutions) in developing investment opportunities in Mozambique and other countries. Some of these investment opportunities are expected to develop into project construction phase during In pursuit of implementing this strategy of diversification, IPG invested over the past years its resources to acquire and/or construct petroleum storage facilities together with complementary logistical facilities such as jetties. In addition, IPG participates effectively, in close coordination with its partners, in monitoring and following up projects under construction as well as developing expansion projects for its Joint Venture and Associate Companies. EPS (FILS) SALES Finance and Treasury Despite the numerous challenges posted by the World financial and commodity markets which led to negative operational results during, the Company achieved some of its strategic goals by successfully discharging all its contractual obligations towards various customers and suppliers and thereby not only maintained a strong market presence, but also created a strong base for its future operations. This is well demonstrated by the fact that IPG achieved all-time high record sales of $5 Billion during. IPG continued to maintain its strong and good relationship with all the international, local and regional banks which provided the ongoing financial support to handle its trading activities in petroleum products. Net Profit Margin (Net Profit Sales) RETURN ON CAPITAL EMPLOYED (ROCE) (%) 10

6 Human Resources Department IPG deems its human resources to be its true capital. Therefore, the Company considers its investment in human resources as a long term strategic goal. The Company persistently seeks to develop its plans in that field to attract and implement effective ideas to strengthen this human resource. During, the strength of the total employees reached 117. The Company filled 11 regular vacancies but still fell short of the recruiting goal set for. However, efforts will be geared up to complete the hiring of personnel budgeted for the year Information Technology London and Singapore offices are now fully interconnected with the head office in Kuwait and users can call each other free of charge. The old storage system with limited capacity and slower connectivity was replaced with high capacity having faster connectivity which is scalable and can be updated. Space limitations will no longer be a constraint. The new storage system is also accompanied by a backup solution. In accordance with its policy to keep abreast with latest technology, laptops were replaced by new core i7 based ones. Legal Affairs Since its establishment, the Legal Department has evolved to a level where it renders highly professional legal services without the need to resort to external law firms except in critical and complex situation. The main strength lies in its ability to serve the legal needs of the Company in Worldwide jurisdictions. The wide experience of the Department in International law has helped the Company in concluding secured and profitable business deals. The main focus of the Department during was to enforce the Arbitration Award rendered by ICC s International Court of Arbitration in Paris against the Eritrean Government, Ministry of Energy & Mines and Petroleum Corporation of Eritrea. The Department engaged the services of International Law Firms and Assets Tracing Companies in order to explore and identify the assets belonging to the State of Eritrea with a view to enforce the award. The Company is confident that the various steps already initiated in several countries under different jurisdictions will lead to the total recovery of the debt. In conclusion, the Board of Directors expresses its sincere gratitude to the shareholders for their invaluable trust and support and to all the employees of IPG for their dedication to work. IPG s Subsidiary, Joint Venture and Associate Companies (brief of facilities and latest development) The Board of Directors 11

7 IPG s Subsidiary, Joint Venture and Associate Companies (brief of facilities and latest development) 1. D&K Holdings LLC UAE: (IPG share 100% - Subsidiary Company) D&K Holdings LLC is the shipping arm of IPG. The Company owns and operates three petroleum product vessels which are fully utilized by IPG. A long term vessels acquisition program was developed and being pursued targeting to expand the existing D&KH fleet over the next five years. The D&KH fleet will provide IPG with the required strategic controlled tonnage coverage. 2. Uniterminals Lebanon: (IPG share 50% - Joint Venture Company) Uniterminals markets petroleum products to wholesale buyers in Lebanon. It owns and operates a petroleum product storage terminal with a capacity of 74,000 cubic meters. It has a paid up capital of $16.7 Million. Other Shareholder is: n Unihold SAL Lebanon 12

8 3. Inpetro SARL, Beira Mozambique: (IPG share 40% - Associate Company) Inpetro owns and operates petroleum products storage terminal in Port Beira, Mozambique with a storage capacity of 95,000 cubic meters constructed at a total capital cost of $26 Million. n PETROMOC National Oil Company of the Republic of Mozambique n NOIC National Oil Infrastructure Company of Zimbabwe (PVT) Limited 4. Arabtank Terminals Ltd (ATT), Yanbu Kingdom of Saudi Arabia: (IPG share 36.5% - Associate Company) ATT owns and operates a storage facility of 287,700 cubic meters of which 268,500 cubic meters is for petroleum products and 19,200 cubic meters for chemical products with a total capital cost of $74 Million. Plans to expand the petroleum storage capacity by an additional 230,000 cubic meters for white oils are under way. n ENOC Emirates National Oil Company n SARCO Saudi Arabian Refining Company 13

9 5. Horizon Tangiers Terminals SA (HTTSA) Morocco: (IPG share 32.5% - Associate Company) The Consortium IPG-HTL-Afriquia was awarded the Concession Agreement for 25 years in November 2006 for the construction and operation of hydrocarbon products storage and bunkering facilities at Port Tangiers, Morocco. The storage facility will have a capacity of 508,000 cubic meters with a capital cost of Million. The facility is in final construction phase and commissioning is expected during first quarter of n HTL Horizon Terminals Limited (100% subsidiary of ENOC Emirates National Oil Company) n Afriquia SMDC 6. Horizon Djibouti Holdings Limited (HDHL) Djibouti: (IPG share 22.22% - Associate Company) 14 HDHL owns 90% of the Horizon Djibouti Terminals Limited (HDTL), with the remaining balance (10%) owned by Govt. of Djibouti. HDTL owns and operates an independent storage terminal for petroleum products, LPG, chemicals and edible oils with a storage capacity of 370,000 cubic meters constructed at a capital cost of $100 Million. Upgrading of LPG facilities has been successfully completed and plans to expand the existing petroleum storage capacity are under way. n HTL Horizon Terminals Limited n NSHL Net Support Holdings Limited n EML Essense Management Limited

10 7. Horizon Singapore Terminals Private Limited (HSTPL) Singapore: (IPG share 15% - Associate Company) HSTPL owns and operates an independent petroleum storage terminal with a storage capacity of 1.2 Million cubic meters and four jetties at a capital cost of $299 Million. n HTL Horizon Terminals Limited n BIL Boreh International Limited n SK South Korea Energy Asia Pte. Limited n MBV Martank BV 15

11 8. Asia Petroleum Limited (APL) Pakistan: (IPG share 12.5% - Associate Company) APL owns and operates a petroleum products pipeline (including pumping station and storage) in Pakistan. The pipeline runs from Zulfiqarabad terminal at Pipri, Karachi to Hub, Baluchistan to transport Fuel Oil for HUBCO Power Plant. The facility was constructed at a total capital cost of $100 Million. n PSO Pakistan State Oil n AIL Asia Infrastructure Ltd of Singapore n VECO VECO International of USA 9. Vopak Horizon Fujairah Limited (VHFL) UAE: (IPG share 11.11% - Associate Company) VHFL owns and operates an independent petroleum products storage terminal in Fujairah with a storage capacity of 1.48 Million cubic meters including marine facilities with four berths and one single point mooring (SPM), at a total capital cost of $250 Million. Phase VI expansion with an additional storage capacity of 606,000 cubic meters is expected to be commissioned during first quarter of n VOPAK VOPAK Oil Logistics Europe & Middle East B.V. of Netherlands n HTL Horizon Terminals Limited n The Government of Fujairah 16