Mazeikiu Nafta reported its preliminary financial results for 3Q06 on Friday. Net profit fell to a mere US$ 1.17m versus US$ 86.21m in 2Q06. Sales also declined 9% q/q coming in at US$ 1.18bn. The throughput of Mazeikiu refinery was 15% down q/q to 2.07 mt from 2.43mt in 2Q06.
As a result of the weak 3Q result the company revised its financial forecast for 2006: it now expects 2006 net profit at US$ 88m down from US$ 166.9m it forecasted on October 16, which was also down from an original forecast of US$ 204.9m it gave in July.
Our view: After the shutdown of the section of the Druzhba pipeline which supplies Mazeikiu refinery, it was expected that the results of the company will be negatively impacted due to the lowered throughput as well as depressed margins. In 3Q Mazeikiu got only half of the usual amount of Urals type crude through the Druzhba pipeline and the rest was imported through the Butinge terminal. According to our calculations this might have added 1.5 US$/bbl to COGS due to loading costs.
Combined with much lower throughput of the refinery and a decline in margin environment effective refining margin eroded to 0.1 US$/bbl from 5.2 US$/bbl in 2Q06. In 4Q06 we expect further pressure on margins as supply of Urals’s type crude will likely fall further on a quarter on quarter basis (please note that supply through the Druzba pipeline in the first month of 3Q was uninterrupted) and refining margin environment seems to worsen over 3Q06. The revised net profit figure for 2006 is much lower than our forecast of US$ 240m, which was made before the supply shutdowns and the refinery accident. On the back of the changed environment we tend to lower our forecast after learning more on the issue from PKN next week when it reports 3Q06 results.