Attock Refinery was incorporated on Nov 8, 1978 and came to be listed on the stock exchanges on June 26, 1979. The company is a subsidiary of Attock Oil Company Limited, UK and its ultimate parent is Bay View International Group S.A.

ARL is a member of the Attock Group of Companies which also has under its fold four other listed companies: Pakistan Oilfields, National Refinery, Attock Petroleum and Attock Cement.

The company prides itself on being the pioneer of crude oil refining in the country with its operations dating back to February 1922. Drilling started on Jan 22, 1915 when two small stills of 2,500 barrel per day (bpd) came on stream at Morgah, Rawalpindi (the site of ARL) following the first discovery of oil at Khaur. But being that old has its shortcomings. The refinery requires constant care of the wear and tear.

In a recent filing with the stock exchange, the company disclosed that the upgradation project would be completed by the end of FY16

ARL is currently in final stages of completion of the largest expansion and up gradation ever since its inception. The extensive up-gradation project, which was estimated to cost $251m is largely financed through debt-equity ratio of 80:20. From the point of view of investors in ARL stock the exciting development was thought to be an improved payout by the refinery.

Post up-gradation government may relax the cap on the dividend. Currently, the refinery cannot distribute fuel refinery earnings more than 50pc of the paid up capital, the restriction on dividend placed by the Petroleum Policy, 2001. The extra earnings have been stipulated to be utilised only for refinery up gradation. “However, likely completion of the plant up-gradation by the end of FY16 could unlock the dividend capping”, market participants are optimistic.

The company in a filing with the stock exchange on Aug 07, 2015 disclosed that the upgradation project would be completed by the end of FY16.

On Feb 9, 2016, chairman, Shuaib A. Malik wrote the directors’ review on the latest available half yearly accounts for the six months ended Dec 31, 2015 and gave the feedback on ARL’s up-gradation Project. He mentioned that a preflash unit, naphtha iiomerisation unit, diesel hydrodesulphurisation unit, auxiliary units, utilities and expansion of existing captive power plant. All of those were completed. Construction activities related to equipment interconnecting piping, instrument and electrical cable installation, work inside electrical substations and control room, remaining civil works i.e. paving and finishing etc. were underway. The shut-down activity for carrying out revamping work on existing units had begun. Mr Shuaib termed the overall progress as ‘satisfactory’.

Analyst at brokerage Foundation Securities says: “We see commissioning of ATRL’s expansion and upgradation project to provide substantial upside to the company’s prevailing margins. The project should primarily improve company’s product slate, whereas incremental throughput should also be a positive for the company”.

Saqib Hussain, analyst at brokerage Sherman Securities stated that the expansion in Naptha isomerization unit (to convert naptha into petrol) would increase gasoline production by 7,000bpd to 12,000bpd. And he added: “With additional 5,000bpd of petrol production, it is anticipated that this project will improve earnings before income tax, depreciation, amortisation (EBITDA) by Rs1.8bn per annum”.

On the overall basis the company earned profit of Rs35m from refinery operations during the latest released accounts for the six months period ended Dec 31, 2015, against loss of Rs1.6bn sustained in the corresponding period of 2014. After including non-refinery income of Rs 995m (Rs1bn in HY14) the company closed the period with a profit after tax of Rs 1.0m against loss of Rs543m YoY.

Chairman, Shuaib A. Malik in the directors’ review observed: “The phenomena of fall in prices of crude oil as well as products continued during the period under review which resulted in inventory losses. The depreciation of rupee versus dollar also caused exchange loss on foreign currency transactions relating to crude oil”. Due to slight favourable fluctuation in the prices of products and crude oil in the second quarter of the year, the company managed to have a positive but depressed gross refiner’s margin (GRM). However, it enabled the company to recover loss from refinery operations incurred in first quarter of the year.

The ARL chairman affirmed: “Despite challenging operating environment the company maintained continued supply of petroleum products by operating at 99pc of its capacity. The refining throughput during the half year was 7.524m barrels (December 31, 2014: 7.8m barrels) while the sales volume was 7.039m barrels (December 31, 2014: 7.577m barrels). All the processing units of refinery operated smoothly during the period under review”.

The ARL chairman lamented that the overdue receivables from government owned entities were still on the rise. “We urge the government to take appropriate steps for resolution of the circular debt issue on a long term and permanent basis”, he urged.

ARL carried total assets of Rs84bn on its balance sheet on Dec 31, 2015. The company maintained paid-up capital at Rs853m in 85.3m shares of Rs10 each. With the closing stock price on Thursday at Rs230.37, the market capitalisation of the refinery works out at Rs19.7bn.

Published in Dawn, Business & Finance weekly, April 4th, 2016