After six painful years, Byco Petroleum managed to turn the corner in fiscal 2014-15 with an operational profit of Rs2.9 billion, which came primarily on the back of better inventory management, officials said.
The company, which has a refinery, petroleum marketing arm and oil-import terminal, posted a modest net profit of Rs72 million, compared to a loss of Rs5.9 billion last year, according to results released on Friday.
“We are elated. It just goes on to show that hard times come and go,” said a senior company official. “We have even performed better than other refineries in the country. That speaks for itself how we have handled the situation.”
Byco took a combination of steps to ensure that inventory of oil was kept at the minimum to avoid loss, which occurs when price goes down and inventory is worth less.
“We carry not more than 3 or 4 days of stock. This has been made possible by importing smaller parcels of crude oil and rotating it quickly,” the official said.
This helped Byco record a gross margin of 5.13% – the highest among all the four listed oil refineries.
In absolute terms, gross profit of National Refinery Limited (NRL) in the same period was more than Byco’s but that is primarily due to its income from the lube oil business.
Byco could have done even better if not for the financial charges of Rs3 billion, which ate into its operational income.
“The company has been trying hard to bring down long term debt. We have paid Rs5 billion to the banks in the past year alone. It’s going to help improve things in the future,” the company official said.
Slide in oil price and the continuous uncertainty over its trajectory has made refining business a risky one.
Byco’s official said he expected oil to bottom out at around $30 a barrel. And until then, refineries would have to be on their toes to effectively manage inventories, he said. Currently, oil is hovering between $45 and $49 a barrel.
Byco Petroleum is also considering a merger with its holding company in a bid to integrate different parts of its petroleum supply chain.
The proposed merger of Byco Petroleum and its subsidiary Byco Terminals with Byco Oil Pakistan was announced earlier this year.
Byco Petroleum has 35,000 barrels per day refinery and a marketing company with over 260 retail outlets. It also owns a liquid terminal through a wholly-owned subsidiary.
Majority stake of this entire enterprise is held by Byco Oil Pakistan, a holding company used by local and foreign sponsors to control the group.
Byco Oil in turn owns 120,000 bpd refining complex. But Shahbaz Ashraf, an analyst at AHL Research, said he doesn’t see any major impact of the merger on the refinery’s profitability.
“It’s just an amalgamation and not much should be read into it at least at this point of time. And in any case, it will take 4-5 months.”
The oil price fluctuation of 2009 hit Byco hard in the shape of a massive inventory loss, which resulted in a five-year long spat of operational glitches. In the past year it was able to increase throughput of its refining plants and increase utilisation of its terminal since February 2015.
It also vigorously followed a policy of keeping its stock in trade to minimum to avoid inventory loss by quicker conversion of crude oil into petroleum products and its early distribution. Byco’s share was down 3.9% amid a broader market fall.
Published in The Express Tribune, September 19th, 2015.