power and heat• overall market leader in b2b and b2c sales of diesel, lubricants for traffic and...
TRANSCRIPT
Fortum Oil
Risto RinnePresident, Oil Sector
Capital Markets DayJune 17, 2004
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Strengthen position as the leading clean fuels refining company
Fortum focuses on the Nordic energy market as a platform for long-term profitable growth
Excel in business performance
Create the leading
power and heat company
Become the energy supplier
of choice
Strengthen position as the leading clean fuels refining
companyTargets
• Improvements in product slate
• More favourable feedstocks
• Leverage growth opportunities
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Fortum Oil is different
• "Pure-play" oil refining & marketing company with long-term track record of superior refining margins
• Refining margin premium due to geographic location, stronghome market position and high quality of assets
• Attractive growth opportunities in components due to forerunner position based on own technology and know-how
• Strong retail market position in Finland and growth prospects in the Baltic states, Poland and St. Petersburg
• Shipping as a key element in integrated logistics system
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Assets in Fortum Oil
Two refineries- Porvoo- NaantaliExtensive retail network
Terminals
South Shapkino oil field (50%)
Retail networkTerminals
Shipping fleet of 29vessels
MTBE plant in Sines, Portugal
Iso-octane plant (50%) in Edmonton, Canada
Ibn-Zahr MTBE plant (10%) in Al-Jubail, Saudi Arabia
Nynäs (50%)Three special oil products refineries and one 50% stake
Base oils / PAOplant in Beringen, Belgium
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Attractive Returns for Refining and Marketing• As a result of
premium refining margins, the Refining and Marketing has earned attractive returns even at low points in the refining cycle
0
50
100
150
200
250
300
350
400
450
1999 2000 2001 2002 2003
Average: €293 MM
Operating Profit (EUR million) Return On Net Assets (%)
0
5
10
15
20
25
30
1999 2000 2001 2002 2003
Average: 18.2%
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Operating profit and net assets by segment
Operating profitEUR million
Net assetsEUR million
Oil refining
Oil retail
Shipping and Oil other
28144
79133
3291003
Figures for 2003
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Long track record of superior refining margins
Source Fortum Oil
• Over the long-term, Fortum Oil has consistently been able to generate superior refining margins averaging $2/bbl above internationalreference margin
• The refining margin premium allows Fortum Oil to maintain solid operatingperformance even at the trough of the cycle
NW Europe Refining Margin(1) vs. Fortum Oil Margin ($/bbl)
Note1. NW Europe Refining margin is a reference margin for a complex refinery located in Northwest Europe with the margin
being the difference between product market prices and dated Brent crude price
NW Europe Refining Margin Fortum
0
1
2
3
4
5
6
1995 1996 1997 1998 1999 2000 2001 2002 2003 Q1-2004
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NWE refining margins 1 Jan - 31 May, 2004us
d/bb
l
January February March April May
Complex Hydroskimming
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A leading refiner in the Nordic region Nordic Refining Capacities(1) (million tonnes/year)
• Fortum Oil is a market leader in refining and marketing of high-quality petroleum products in the Baltic Rim, with a total capacity of 14.5million tonnes a year
• Serving domestic and export markets with sulphur-free (10ppm) gasoline and diesel already fulfilling 2009 EU specs
0
2
4
6
8
10
12
14
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Preem Fortum Oil Statoil Shell ExxonMobil
Source Company reportsNote1. Shell owns 21% of Statoil’s Mongstad refinery
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Strategy is supported by market trends
•Tightening refining capacity resultsin more volatile margins at higher levels
• Increasing regional product imbalances create attractive export opportunities
A leading Northern European refiningcompany withfocus on oil products for clean traffic, committed to world-class operational and financial performance
•Specification changes provideopportunities for advancedrefiners
• Increasing crude flows from Russia reposition Fortum closer to crude sources
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Refining market is tightening globally
Million barrels per dayOil consumption and refining capacity
20
30
40
50
60
70
80
90
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
Global Refining Capacity
World Petroleum Supply
World Petroleum Demand
Source: Goldman Sachs
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More volatile refining margins at higher levels Forecasts for North-West European refining marginsUSD / bbl
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Fortum OilBrent complexreference margin
PEL (HC net margin)
UBS (European Composite) 8/03
Pira 10/2003(NW Europe BR cracking)
Morgan Stanley 04/2004(Rotterdam refining margin)
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Increasing market imbalances create attractive export opportunities
European product balancesMillion tons / year
US* gasoline balanceMillion tons / year
Source: Wood MacKenzie
-50
-40
Total products
Deficit
-30
-20
-10
0
10
20
30
40
50
Gasoline Jet fuel/Kerosene
Gas/diesel Heavy fuel oil
Total products
2000
Surplus20052010
200020052010
Gasoline-50
-40
-30
-20
-10
0
10
20
30
40
50
Deficit
Surplus
Source: ENI
* US Atlantic basin deficit
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Stricter specifications provide opportunities for advanced refinersEvolution of traffic fuel specifications
Unleaded
Low-emission(reformulated)
Low-sulfurBio content
1980s
1990s2000s
2004 onward
0
100
200
300
400
500
600
1990 1995 2000 2005 2010
Maximum sulfur content in EU traffic fuelsppm
Diesel
Gasoline
Opportunity toleverage transitionperiods
― Taxincentives
― Temporary shortages
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Increasing crude flows from Russia reposition Fortum Oil from off-site to on-site
HistoricalNorth Sea and Russian crude oil productionMillion barrels / day
Crude oil flowsMillion tons / year Current
55
10 5010
Russian and FSU crude oil production
North Sea crude oil production
02468
101214161820
1990 1995 2000 2005 2010 2015
Source: PIRA
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Excellent platform for the future
On-site location along the export route of Russian crude and other feedstocks
Ability to produce advanced clean traffic fuels meeting all newrequirements
Strong positionin core refining
business
Technological and organisationalcapabilities to innovate and produce advanced high-margin products
Established market positions in base oils and components which support the clean trafficfuel strategy
Attractive growth opportunities
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Oil Refining
Our portfolio consists of businesses with complementary roles
Components
ShippingOil Retail
Growth opportunities inpromising niche marketsthat also enable Fortum Oil to differentiate itself as a refining company
Channel for reaching the end customersand capturing additional marginfrom refined products
Flexible crude supplyand product logisticsthat improve marginsCore of the
company
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Oil Retail - reaching the end customer
ShippingOil Retail
Oil refining
Components
Channel for reaching the end customersand capturing additional marginfrom refined products
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Oil Retail has a strong position in its key marketsRetail Finland Retail Baltic Rim
• Among three leading fuel retailers in key market areas 2003.Market shares*:• St. Petersburg (Gasoline 14%, Diesel 9%,)• Estonia (Gasoline 20%, Diesel 12%)• Latvia (Gasoline 14%, Diesel 8%,)• Lithuania (Gasoline 9%, Diesel 6%)
• Presence in Poland• Total sales volume 600 million liters, 2003
• Market leader in traffic fuel retail (gasoline market share 29%, diesel market share 43%, 2003)
• Total sales volume 1,600 million liters (gasoline and diesel altogether)
• Highest recognised retail brand in Finland
• Overall market leader in B2B and B2C sales of diesel, lubricants for traffic and industry, light fuel oil for heating and traffic, heavy fuel oil, and aviation fuels in Finland
• Market leader (70% market share) in sales of bottle and bulk LPG for household and industrial use in Finland, volume 180,000 tons per year in 2003
• Bulk sales in Sweden (~25% market share), volume 110,000 tons per year in 2003
LPG
Direct Sales
* Fortum estimate
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Assets in Oil Retail2004
• St. Petersburg: 30 stations of which 9 automated and 1 D-station, 1 terminal
• Estonia: 31 stations, 1 terminal• Latvia: 31 stations, 1 terminal• Lithuania: 28 stations Poland: 39 stations
Retail Finland• Network consisting of
– 374 traffic stations and 182 automated stations– 36 Quick shops and 22 Pikoil stations
Direct Sales• 328 D-stations in Finland• Lubes blending plant in Helsinki
LPG• LPG storage caverns in Tornio, Finland and Sundsvall,
Sweden• 50% share of Innogas LPG bottling facility in Porvoo• LPG presence in Estonia and Latvia
Retail Baltic Rim
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Shipping - flexible logistics
Flexible crude supply and product logistics that improve margins
ShippingOil Retail
Oil refining
Components
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Shipping - a key element of an integrated logistics system
Crude oil and productshipping
Refinery logistics system
Benefits for refining margin• Flexibility to schedule crude
supply and product exports to benefit from market volatility
• Using larger cargo sizes inproduct exports to gain scale benefits
• Large storage capacity for fuel products
• Deep harbours for large ships
• Modern ice-classed fleet consisting of crude oil and product tankers
• High safety standards
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Assets in Shipping
• 29 crude, product and chemical carriers– 10 own– 4 bareboat chartered– 15 time chartered
• Total capacity of approximately 1 million DWT
• 62% crude• 38% product
• 50% of capacity used internally• Main focus on operations in North-West Europe• 40 million tons of cargo with 1,800 voyages and
3,500 port calls annually
Both internal and external customers
Crude and product shipments
Ice classified tanker fleet
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SeverTEK - Oil production in Timan-Pechora
South Shapkinooil production started in July 2003
current daily production 26,000 bbl/dUSD 360 million investmentUSD 200 million project financing from EBRDproven and probable reserves ~ 20 million tons of oil
SeverTEK
a JV 50/50 owned by Fortum and Lukoilpermanent staff of more than 450additional production licence for 4 oil fieldsrecoverable reserves of 30-40 million tonsconsolidation with equity method
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Fortum Oil - potential to excel
• pure play refining and marketing company with high quality assets
• strong position in core refining business
• attractive growth opportunities
• committed to world-class operational performance
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Disclaimer
This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.