GIG: In 2018, Motor Oil recorded a rise in sales volume for the 10th straight year despite Greece’s crisis emerging during this period. What helped lead to this solid performance? What results are you expecting looking ahead?
Tzannetakis: Oil refining and marketing is no doubt a global sector. From the beginning of operations back in the 1970s, Motor Oil has continually adjusted its business mentality and production model to meet the global needs of the market. The initial construction and operation permit was granted to Motor Oil by the then-Greek government on the grounds that the company would not sell the products it produced in the local market. That was a blessing in disguise. Motor Oil adopted a ‘lean and mean’ approach regarding the product production procedures and established long term relationships with international customers who wanted products of strict specification standards and timely delivery. It was in the late 1980s when Motor Oil was allowed to sell its products in the local market. Greece had become a full European Community (EC) member and Brussels decreed that the crude oil refining and trading sector had to be liberalised in Greece.
I also need to clarify that Motor Oil is an independent refiner, not a part of a large integrated group. This gives us additional flexibility, while the refinery configuration allows us to produce high value-added products that meet the specifications required by our international clientele.
Furthermore, we have an export orientation. In the year 2009, the last year prior to Greece’s signing of the first rescue package, Motor Oil’s sales volume equalled 9.5 million metric tons (MT) of which 61% concerned exports. In 2018, we sold MT 14.3 million of which 82% concerned exports. Not being heavily dependent on the local market has proven to be a good thing in our case.
The fact that the greater part of our sales concern exports does not mean that we are not active in the Greek market. On the contrary, we have approximately 35% of the local market through our wholly owned subsidiaries Coral, formerly Shell Hellas, and Avin Oil. These two companies operate three coherent retail networks comprising approximately 1,400 service stations throughout Greece – 700 Shell, 500 Avin, and 200 Cyclon – with a solid customer base of both Shell Smartclub cardholders and Avin Kerdizo cardholders.
GIG: Since the listing of the company’s shares on the Athens Stock Exchange (ASE) in 2001, Motor Oil has completed investments worth €1.4 billion. What does your future investment plan look like? What improvements are you looking to make?
Tzannetakis: This figure concerns capital expenditure absorbed by the Agioi Theodori Refinery which is the main asset of the company. In Motor Oil the philosophy with regards to investments is summed up in two key phrases: ‘continuous investments’ and ‘early in the cycle’.
I mentioned, in addition to these two terms, the term ‘refinery configuration’ earlier. This means that our refinery stands out for its complexity and flexibility, or its capability to adjust its product mix to customer demand, thus achieving the maximum selling price – which is a key determinant of refinery margins. The other key determinant is the crude slate. This is the mix of different types of crude used as feedstock. Being an independent refiner and having our refinery in an advantageous geographical location, we have many options when it comes to the supply of crude. The array of options is even greater since our modern refinery can process heavy crudes with a high sulphur content. These crudes are sold at a discount compared to light crudes. Historically, we have outperformed the benchmark of the complex eastern Mediterranean refineries in terms of refinery margins.
In the 2000s we invested over €350 million for the construction of a hydrocracking complex, which allowed us to produce diesel to 2009 specifications – four years before our competitors. We also invested over €200 million for the construction of a second crude distillation unit, which was commissioned in May 2010.
In the 2010s we focused on expansions in crude distillation and major upgrading units (the so-called ‘capacity creep’), projects concerning the improvement of environmental terms, health and safety conditions, as well as coastal infrastructure projects to facilitate the delivery and dispatch of goods.
Today, our refinery can process more than 190,000 barrels per day (bbl/d), which is higher compared to the 172,000 bbl/d nominal capacity. The production sales volume increased from MT 7.3 million in 2009 to MT 13.1 million in 2018. I must also note that the refinery is energy autonomous.
In May 2019, we announced that our board had approved an investment project for the construction of a new naphtha treatment complex entailing a total capital expenditure of €310 million. This is scheduled for completion by Q1 2022. The new complex will contribute to increased production of high value-added gasolines as well as kerosene and hydrogen.
I need, nevertheless, to point out that – in as much as we have been consistent in undertaking investments as a means to improve refinery margins, optimise sales, and preserve environmental protection standards – we have been consistent in rewarding our shareholders. Since the inception of our shares on the Athens Stock Exchange we have paid an amount of €1.4 billion to our shareholders in the form of dividends and returns of capital. The historical dividend yield is 6.5% based on the amount paid each year divided by the price of the share at the end of each year. Currently, about 70% of the company’s free float is in the hands of international institutional investors, and our share is a constituent of Morgan Stanley Capital International (MSCI) Greece as well as of the FTSE4Good Index Series.
GIG: There are many issues you must contend with in your business, such as volatile crude oil prices, the price of refinery margins, and foreign exchange risks, just to name a few. What do you perceive as being the key risks currently faced by Motor Oil in meeting future goals?
Tzannetakis: I quote the phrase on the cover of the booklet we give to investors when we go to roadshows: “An Eastern Mediterranean Refinery Continuously Building Shareholder Value.” This is Motor Oil. We have an excellent strategy in place in order to capture the momentum of the refining industry in terms of refinery margin.
We are aware that the prices of the finished products are market driven, with supply and demand being the determinant. Based on our flexible production model we strive to sell as many high value (the so called ‘white’) finished products as possible. White products accounted for approximately 77% of our sales volume in 2018.
As regards the prices of crude, we are price takers. Nevertheless, we do have many options available, and probably more so than some of our competitors. They might be facing geographical limitations (i.e. pipeline crude), geopolitical limitations (our location is advantageous since it is easily accessible), or even business model limitations (not being a member of a large group provides us with great degree of freedom when we have to choose a supplier).
The USD/EUR parity could be an issue yet; the USD is the basic currency of the petroleum industry. We collect dollars from our export sales, and we pay dollars to purchase crude.
GIG: Motor Oil is actively involved in protecting the environment, through an array of activities and investments, while being in regular contact with the local community. Can you tell us about your latest initiatives?
Tzannetakis: The company’s primary goal is to minimise the environmental impact and energy footprint of its operation as part of our sustainable development strategy. This is based on environmental and energy management systems, certified according to the International Organization for Standardization (ISO) 14001 and ISO 50001, respectively.
Because of this, we continue with investments aimed at the steady improvement of our environmental performance. In 2018 we spent €26.1 million on our investment programme with both larger- and smaller-scale projects, making a direct or indirect contribution to environmental protection.
All our companies maintain open channels of communication with local administration authorities and other stakeholders. Recording, investigation, and evaluation of complaints are all covered by a specific procedure to ensure the appropriate immediate- or long-term corrective action is taken.
GIG: You have recently expanded activities by entering the electricity and natural gas market following the acquisition of NRG. What are your goals here? How do you see this segment of the market performing?
Tzannetakis: With the acquisition of NRG we entered the market of electricity and natural gas, and we are now in a position to offer fully integrated energy solutions to households and industrial clients. This is a very volatile and demanding market, currently characterised by major changes in both the regulatory and operational framework. We believe we can establish ourselves as a reliable and competitive player, offering synergies to our customers through our extensive Shell and Avin retail networks. In this context, our aim for NRG is for it to be one of the leaders in the Greek electricity market.