The consolidated net income of the ENAP group of companies after income tax of 17% and foreign taxes, was US$ 98 million, a 6.2% reduction compared to US$ 104 million obtained in 2006.
Consolidated operating income declined from US$ 242.8 million in 2006 to US$ 199.5 million in 2007. This reduction (US$ 43.3 million) is explained by a lower gross margin of US$ 36.0 million and an increase in administrative and selling expenses of US$ 7.3 million, mainly due to the effect of the revaluation of the Chilean peso against the US dollar.
The reduced net operating margin is mainly the result of:
(i) A large reduction in sales due to the reduction in the processing and transportation of natural gas by approximately 62% to the plants of Methanex in Chile’s 12th Region, following cuts in natural gas supplies from Argentina. In 2007, 766.2 million m3 of gas was processed and transported, compared to 2,021.7 million m3 in 2006.
(ii) These reduced sales were partially offset by a better operating margin (before financial and other non-operating expenses) in the refining business, which amounted to US$ 107 million, versus a margin for this business in 2006 of just US$ 4 million, as a result of the strong impact of the large fall in refined-product prices during the last months of 2006.
ENAP´s refineries were strongly affected in 2007 by higher refining costs, due to the lack of natural gas from Argentina as this fuel had to be replaced by other more expensive fuels (propane, butane and diesel), which also meant higher logistical and financial costs.
The non-operating result was a loss of US$ 62 million, US$ 18 million lower than in 2006. This 22.5% reduction is mainly the result of greater non-operating income of US$ 38 million due to the recovery of taxes and sales of assets, and a positive change in Exchange differences of US$ 12 million, the product of the fall in the exchange rate between one year and the other. This was partially offset by an increase of US$ 37 million in financial expenses as a result of the higher short-term debt that ENAP had to incur to finance its greater working capital needs, reflecting the rise in imports and stock levels.
Prices of crude and refined products
The crude price, measured by the WTI (West Texas Intermediate) benchmark, has followed a rising trend throughout the year, starting in mid January 2007. The average WTI price in December 2006 was US$ 61.96 per barrel, falling to US$ 54.1 in January 2007, before rising to US$ 94.7 in November and then falling back to US$ 91.4 per barrel in December 2007. The price rise between January and November was only interrupted in August when the sub-prime mortgage debt crisis in the American financial market exploded, but the rising trend returned in September.
The almost continuous price increase during the year was mainly due to the sustained rise in consumption, following the fast growth of the global economy which completed in 2007 five years of systematic expansion in a context of weak growth in oil production. Consumption grew by 1.1 million barrels a day while global supplies only rose by 0.3 million barrels a day, the difference being met by reductions in stock levels.
The average WTI price in 2007 was US$ 72.2 per barrel, 9% higher than in 2006 (US$ 66.0 per barrel).
The international prices of the products rose as a consequence of the rising trend in the crude price but there were other factors that provided a further impulse. In mid 2007, there were numerous oil refinery faults in the mid-west of the United States, which led refining to maximum capacity in the rest of that country, precisely in the season of peak vehicle gasoline and diesel consumption (the northern summer), together with higher demand for diesel from South America at the same time, due to an especially cold winter in Argentina and Chile, all of which translated into an additional upward pressure on the prices of products, by partially taking surpluses from the Caribbean, Europe and Asia. From the end of the third quarter of 2007, and with the northern summer passed, the refining margins declined because of the reduced market demand for gasoline in America and for diesel in South America.
The average prices in 2007 of the main products on the Gulf Coast were US$ 86.4 per barrel for gasoline and US$ 89.1 per barrel for diesel, compared to averages of US$ 77.6 and US$ 81.6 per barrel respectively in 2006.
Assets and financial debt
ENAP’s total assets increased by 43%, from US$ 3,805 million as of December 31, 2006 to US$ 5,440 million in 2007. This increase mainly reflects an increase in current assets, the result of a scenario of higher international crude and refined product prices during 2007 and larger volumes of imports and stocks, especially of diesel to replace natural gas for electricity generation and for industry.
The increase in short-term debt was to finance the Company’s operating volumes as a result of the stronger demand for fuels caused by the lack of natural gas and the increase in the price of crude and refined products.
ENAP’s total financial debt (including forfaiting) was US$ 1,179 million as of December 31, 2007, compared to US$ 1,048 million as of December 31, 2006. Most of the increase in financial debt (US$ 94 million) was used to finance working capital.
Santiago, February 27, 2008.