The Company

FinancesJanuary – december, 2011

ENAP Results 2011

Historically-low margins faced by global refining industry and increased energy costs, explains the results of the Company during the financial year 2011.

The tough Cost Management Plan applied by the Administration enabled to reduce losses.

The consolidated earnings of Holding ENAP, as of December 31, 2011, measured as profit after income and 40%-special taxes, reached -US$67 million, which compares negatively to the US$70 million profit obtained during the same period of 2010. In turn, earnings after 20%-income tax, as of December 31, 2011, reached –US$95 million, which also compares negatively to the results after income tax obtained as of December 31, 2010, which were US$82 million.

This results from the difficult situation faced by the oil industry as from the second half of 2011, especially of the refining business. The gross margin for the period was US$172 million, showing a decrease of the global refining margins during the last quarter of the year (below US$5 per barrel), and a relative appreciation of the crude oil to which ENAP has access that is mainly concentrated in South America.
 
In addition, it affected strongly the increase of non-crude oil costs (US$306.2 million (36.4%)), which influences mainly the high cost of energy primarily indexed to the cost of crude oil in international markets.

Notwithstanding the above, the measures of operational optimization implemented during the last quarter, enabled mitigating the effects of this delicate situation.

Moreover, and as a result of the Cost Management Plan conducted by the Company, administration costs fell US$20 million between 2010 and 2011.

The item Exchange Difference showed a loss of US$43 million. This value includes US$20 million, the cost of currency hedging, which in turn is compensated by the insurance surcharge for Exchange Rate variations in fuel sales to end customers, and the 10% depreciation experienced by the Chilean peso.

Ricardo Cruzat, ENAP’s CEO, said that "we are working with a strategic perspective that aims to ENAP sustainability and competitiveness in the future. To achieve this, the main axes are focused in our search for new sources of energy supply that reduces our high costs, and in the results we are seeking through a strong campaign of internal cost management."

 
Prices of Crude Oil and Refined Products

In 2011, the price of West Texas Intermediate (WTI) global benchmark crude oil at the New York Mercantile Exchange, showed an average of US$95.1 per barrel, increasing by 19.5% as compared to the average for 2010 (US$79.6 per barrel).

However, Brent crude oil recovered its importance as a global benchmark, the same it had in previous years. According to this benchmark, the increase of the international oil price was even more remarkable considering the WTI: Brent’s price averaged US$110.9 per barrel during 2011 on the Intercontinental Exchange of London, increasing by 38.1% over the same period in 2010 (US$80.3 per barrel).

The rise in oil prices is explained by the increase of global demand and the difficulties in oil supply of the producing countries. Global demand grew by one million barrels per day, from 87.1 MMbpd in 2010 to 88.1 MMbpd in 2011, pushed by a 2.9% growth in the global economic activity, according to estimates of the US Department of Energy.

The global oil supply grew only 0.5 MMbpd, from 87.1 to 87.6 MMbpd, between 2010 and 2011, stocking up the difference through a reduction of the global oil inventories of 0.5 MMbpd. Libyan civil war and the resulting interruption of production and exports of high-quality oil was the main cause of supply shortages. The accumulated loss of Libyan crude oil is estimated in 400 million barrels since February 2011. The loss was supplied, almost equally, with an increased production of the Middle East and a reduction of the stock levels.

Similarly, the lower offer of crude oil and its effects on price generated disequilibrium in the relative prices of different qualities of crude oil, negatively affecting ENAP. The separation between Brent and WTI crude oil prices explain this effect.
 
The prices of oil-based fuels in the international market of the US Gulf Coast, increased between 2010 and 2011, generally following the trend of the Brent crude oil, although the percentage increases were smaller. With regards to gasoline, the price rose by 33.6%, from US$ 86.2 to US$ 115.2 per barrel; the price of diesel rose by 37.6%, from US$ 90.7 to US$ 124.8 per barrel; and in the case of fuel oil #6, the price change was 37.2%, from US$ 69.8 to US$ 95.8 per barrel.

It is worth noting that processing more expensive crude oils represents an additional cost to refineries, as it requires more working capital and in turn, the energy that represents the crude consumed in the process becomes more expensive.

Assets, Financial Debt and Ebitda

As of September 31, 2011, ENAP’s total assets increased by 12.1%, from US$5,532 million on December 31, 2010, to US$6,203 million on December 31, 2011. This increase is mainly due to the increase of inventories, which grew by US$397 million as a result of an increase in crude inventories for US$278 million (the effect of volume and higher value of raw material), and increased product inventories by US$98 million, affected by the higher international price of the products.

As of December 31, 2011, current and non-current liabilities (excluding equity), increased by US$746 million (14.7%), compared to December 31, 2010. The main variations are given in the item, Other Current Financial Liabilities (US$404 million) and Non-current for US$ 167 million, as a result of the placement of a bond under rule 144-A for US$ 500 million to finance part of the capital investments for US$ 368 million during the year. The balance as of December 31, 2011 of US$ 222 million was destined to the payment of obligations with the public and other short-term maturities in early January 2012.  

The EBITDA generated by ENAP as of December 31, 2011, was US$ 372 million.