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Lehman Brothers 050608 Pentti Neste Oil

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Information about Lehman Brothers 050608 Pentti Neste Oil
Business & Mgmt

Published on January 12, 2009

Author: ginosmit

Source: slideshare.net

Description

Lehman Brothers 050608 Pentti neste oil. Posted by Youmanitas Energy Farms Foundation The Netherlands.
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Neste Oil Petri Pentti, CFO Lehman Brothers, London 5th June 2008

Agenda Corporate Strategy Oil Refining Renewable Fuels Financials Summary 1

Neste Oil in Brief • An oil refining & marketing 1) 2007 Comparable EBIT company with focus on high quality petroleum products with reduced € 626 MM environmental impact • Five businesses with Renewable Fuels -13 complementary roles Specialty Products 109 • Listed in the Helsinki Stock Exchange under the symbol Shipping 28 NES1V • Approximately 4,800 employees Oil Retail 59 • Market capitalization approximately EUR 6 billion Oil Refining 484 • Included in the Dow Jones Sustainability World Index as of September 2007 1) Excludes “Oil Other” of EUR -41 MM (including eliminations) 2

Our strategy is based on two growth areas Refining the future The leading provider of cleaner traffic fuels Oil Refining Renewable Fuels Complementary businesses ( Base oils, Gasoline components ) Supporting businesses ( Retail & Shipping ) Excellent operational and financial performance Responsibility Cooperation Innovation Excellence 3

Agenda Corporate Strategy Oil Refining Renewable Fuels Financials Summary 4

World oil consumption and refining capacity Million barrels per day 90 80 70 60 Oil consumption 50 Refinery capacity Sources: BPreview until 2004 40 +1.8% increase oil consum ption 2005-2009 Increase refinery capacity, PetroleumE conomist 30 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Sources: BP review until 2004, +1.8% increase oil consumption 2005- 2009, Increase refinery capacity, PetroleumEconomist, IEA March 2008 5

Healthy margins expected for complex refiners 2015 supply curve vs demand Western Europe Expected Relative Zero Illustrative Demand Cost margin 2015 Price level Average margin Highest Low margin Conversion Medium Our position refineries High Conversion 27% Conversion refineries Refineries 48% 25% 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 Refining Capacity (Kbpd) Notes: Low Conversion < 25%, Medium Conversion >25% <50%, High Conversion >50% Relative Normalised Conversion Capacity Sources: Oil and Gas Journal; Internal Analysis 6

Diesel share of new car registrations (%) is increasing.. 28.4 34.7 74.4 EU-15 38.4 2007: 53.3 % 28.3 (EU-15, Iceland, Norway 27.1 40.1 47.8 and Switzerland) 77.2 77.0 73.9 55.8 32.1 2.9 69.3 70.9 Association of European Automobile Manufacturers 7

..which is one driver for strong diesel margins at the moment.. USD/bbl 50 50 40 40 30 30 20 20 10 10 0 0 -10 -10 -20 -20 -30 -30 -40 -40 -50 -50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2008 Diesel 2) Gasoline 3) Heavy Fuel Oil 4) (price difference to crude oil price 1), USD/bbl) 1) Brent Dated 2) ULSD 10ppm CIF ARA 8 3) Premium Unleaded CIF ARA 4) HSFO 3.5% CIF ARA

..and our refining capacity is ready to benefit from dieselization.. Russian crude replaces Diesel replaces North Sea crude as feedstock heavy fuel oil Crude Oil Sourcing, Porvoo + Naantali (MT) Production, Porvoo+Naantali (MT) 16 16 14 14 Other 12 12 Gasoline 10 10 8 8 6 6 Diesel, Jet fuel, Gasoil 4 4 2 2 Heavy products 0 0 2007 2007 Estimate after the Estimate after the Diesel project fully up and running Diesel project fully up and running Other feedstocks Other crudes Russian export blend 9 Note: very rough After Diesel project -estimate is based on 2005/2006 production yields added by diesel project

..adding to our long track record of superior refining margins USD/bbl 14 12 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Q1/2008 IEA Brent Cracking Neste Oil Total Refining Margin • Key drivers of Neste Oil’s superior refining margin: Price difference between Brent and Russian crude and increasing use of heavier input Refinery configuration and product slate (including base oils) Location and logistics (transport differential in domestic and export markets) Note: Margins are calculated in different ways and are not directly comparable 10

Upgrading projects underpin refining growth Implement upgrading projects at existing sites Exploiting opportunities • Organic investment opportunities in ‘bottom of the barrel’ upgrading • Coker and Hydrocracker projects at existing sites to produce more diesel Using scale advantages • Increase size of the process units significantly by using external feedstock • Location advantage of Porvoo and Naantali favor projects based on imported VGO or fuel oil Leveraging capabilities • Experience in implementing upgrading projects • In-house engineering capabilities 11

Agenda Corporate Strategy Oil Refining Renewable Fuels Financials Summary 12

Considerable growth potential exists globally- national biofuel targets Canada: 5 % by 2010 (gasoline) EU: EU: 2% by 2012 (diesel) 5.75 % by 2010 5.75 % by 2010 China: China: 10 % by 2020 10 % by 2020 10 % by 2010 10 % by 2010 15 % by 2020 15 % by 2020 US: US: 5.42 % by 5.42 % by 2012 2012 Australia: 5% by 2010 20 % by 2020 India: India: 20% of 20% of Brazil: diesel by diesel by 5 % by 2010 2012 2012 Notes: 1) EU target: 5.75% (energy content) biocomponent penetration in road fuels by 2010, 10% alternative fuels in road transport by 2020 2) US target: 5.42% of 2012 gasoline demand to come from renewable fuel components (i.e. 7.5 billion gallons) 3) India target: 20% of diesel pool from biocomponents by 2012, 10% ethanol in gasoline by 2010 4) China target: increasing corn ethanol from 1-3mt. Then focus on alternative feedstocks Sources: European Biodiesel Board; Federal Renewable Fuel Standard (Energy Bill); EU commission 13

Government policies further boost demand EU biofuel regimes (Jan 2006) EU biofuel regimes (2008) Tax break Obligation No policy or no information Source: Neste Oil 14

Strong demand growth outlook in the European Union Historical and targeted EU biomass based diesel production 2.5 M t Mt Key implications pa increase in 60 55.0 production required to • Need for high quality achieve EU 50 vision biomass derived diesel 1 M t pa 40 increase in • Need for a wide variety of production required to 30 different feedstocks to meet achieve EU 20.0 EU target and vision target 20 13.0 • Need for products that are 10 3.2 compatible with vehicle 2.0 population in use and with 0 the logistical system 2004 2005 2010e 2020e 2030e Note: Assumes that both gasoline and diesel have 5.75% biocontent in 2010 and 10% in 2020 Sources: European Biodiesel Board, EU Commission 15

Neste Oil's NExBTL renewable diesel • Key advantages: feedstock flexibility, excellent fuel properties • High quality (energy value, cetane number, cold properties) justifies premium pricing NExBTL renewable 3rd generation FAME / RME biodiesel diesel (1st generation) Vegetable oils & Vegetable oils & Biomass feedstock animal fats (mainly animal fats rapeseed oil) Hydrogenation Gasification & technology Esterification Fischer-Tropsch Bio-hydrocarbon Bio-hydrocarbon end product Ester-biodiesel 16

NExBTL´s Competitive Position product market price $/ton - Price premium due to higher quality and energy content NExBTL renewable >90% of world biodiesel diesel production belongs to1st generation 1st generation FAME/RME biodiesel Sulphur-free Diesel fuel product quality 0 illustrative example 17

NExBTL Capacity Outlook 1. Finland #1 170,000 tons 2007 2. Finland #2 170,000 tons 2009 3. Austria 200,000 tons 2010/11 JV with OMV, pending 4. Singapore 800,000 tons 2010/11 5. Globally Millions of tons by 2015 18

Next Steps - Get out from the food chain! • Food should not be used as fuel, but – that is all we have currently – all feedstock should have equal treatment 19

Agenda Corporate Strategy Oil Refining Renewable Fuels Financials Summary 20

Key financial targets Leverage 1), % 50 target: between 25-50% 40 30 20 10 0 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Return on average capital employed (ROACE) 2),% 25 target: at least 15% 20 15 10 5 0 Q 1/ 0 6 Q2/ 06 Q3/ 06 Q4/ 06 Q 1/ 0 7 Q2/ 07 Q3/ 07 Q4/ 07 Q 1/ 0 8 1) Net debt/Net debt + equity 21 2) After tax, rolling 4 quarters

Target competitive payout ratio of at least 33% Payout ratio % of EPS Shareholder returns 60 % • Ambition to create significant 50 % value to our shareholders 53% Target of • Target payout ratio of at least 40 % at least 33% 33% of underlying profits 30 % 44% • Return funds to shareholders if not required to finance growth 20 % 10 % 0% 2007 2007 dividend 1.00 € /share Adjusted for non-recurring items Payout from reported EPS of EUR 2.25 22

Agenda Corporate Strategy Oil Refining Renewable Fuels Financials Summary 23

Neste Oil ... ... aims to be the world’s leading renewable diesel producer ... continues to invest in new conversion capacity at current refineries ... invests several billion euros in growth projects over the next 10 years ... to maximize shareholder value 24

Thank You!

NExBTL has superior product quality NExBTL characteristics • CO2 reduction Fuel Sulphur-free RME NExBTL • Cleaner emissions Diesel fuel1) Properties • No implications for existing ≈ 885 ≈ 835 Density at +15°C (kg/m3) car pool 775 ... 785 • No need to relax ≈ 51 ≈ 53 ≈ 84 ... 992) Cetane number specifications to achieve ≈-5 ≈-5 ≈ - 5 ... - 30 Cloud point (°C) high bio content • Distribution within existing ≈ 38 ≈ 43 ≈ 44 Heating value (lower) (MJ/kg) oil refinery logistics ≈0 • No need to compromise Sulfur content (mg/kg) < 10 < 10 fuel quality Product stability Stable Stable Unstable (1) EN590/2005 (2) Blending cetane number 26

Significant reduction of GHG emissions NExBTL renewable Fossil diesel diesel NExBTL's GHG emissions over Crude oil Vegetable oil production, entire lifecycle are 40-60% lower production, processing and than fossil diesel processing and transportation transportation 0.95 - 2.25 t CO2 Majority of emissions generated on raw material production Refining Production and processing Potential to reduce GHG emissions in raw material End use production End use 0 t CO2 3.2 t CO2 • optimising fertilizer use • waste water treatment • use of waste 3.8 t CO2 per ton 1.3 - 2.6 t CO2 per of diesel ton of NExBTL Source: Concawe/Eucar WTW 2004, IFEU 27

Significant reduction in tailpipe emissions • Engine tests have proved that NExBTL renewable diesel reduces tailpipe emissions significantly compared to fossil diesel fuel: 18% less nitrogen oxides 27% less small particle emissions 20% less hydrocarbons 10% less carbon monoxide 30-40% less formaldehydes 40% less benzene Source: Scania, MAN, VTT 28

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