Petroplus is to close three of its five oil refineries over the coming weeks because it has run out of money for crude supplies since bankers froze its credit lines abruptly this week.
Talks with the bankers have been "open and constructive" and will continue in the coming days, the financially troubled company said in a statement about the closures on Friday.
"In the meantime, the company will start temporary economic shutdowns of the Petit Couronne (France), Antwerp (Belgium) and Cressier (Switzerland) refineries in January 2012 given limited credit availability and the economic climate in Europe."
A victim of oversupply in European refining and of an investment strategy under former boss Thomas O'Malley that fell foul of an industry downturn, Petroplus and European government officials have been locked in talks with the 13 banks that froze a $1 billion facility it needed to buy crude oil.
Friday's announcement follows days of talks among bankers, government officials and the company aimed at keeping fuel flowing from Europe's biggest independent refiner.
A source close to the situation said a "provisional financing agreement" had been found to keep the talks going after intensive talks involving banks, the company and local governments.
And a Swiss local government official said he was urging the banking consortium to reconsider, although he did not confirm any breakthrough.
"I called yesterday to both Swiss banks, UBS and Credit Suisse , to insist on the local and strategic importance of the Cressier plant," said Thierry Grosjean, Economy Minister at the Swiss canton of Neuchatel, home to Petroplus's Cressier refinery.
Traders and analysts expect a large customer, supplier or banker could step in to keep plants running at some point.
But despite efforts so far, workers at the company's French and Belgian refineries were already preparing shutdowns on Sunday and Monday, according to officials and trade unions.
"There is no more crude coming in so the plant cannot work any more so we need to start shutting down all the plant's units on Monday, but this is a technical shutdown," said a spokeswoman for Petroplus in France. "The shutdown will take about a week."
The Cressier plant has enough crude to last between 15 and 20 days, according to the head of economic services in the canton of Neuchatel, Patrick Cossettini. Traders said that of Petroplus's five plants, the UK plant in Coryton might be the last to stop given its superior tank holding capacity.
WHY FREEZE NOW?
It remained unclear why the banks cut funding so abruptly just two months after allowing the troubled company to breach debt covenants without penalty.
Analysts and traders believe a worsening outlook for the industry and pressure from governments on banks to boost bank capital might be among the reasons for the unusual move, but one loan industry player thought otherwise.
"For me, this is a clear signal that something must have happened - banks don't do that. Banks would only act in such a manner if something has occurred. This is very untypical - some information is clearly missing," said a head of loan syndicate who is not involved in Petroplus financing but still did not want to be named.
Apart from Friday's statement, Swiss-based Petroplus has not responded to phone calls and emails from Reuters and has declined to elaborate on a December 27 announcement on the frozen credit lines.
O'MALLEY CONNECTION
The ailing company's latest financing problems throw a spotlight on Thomas O'Malley, the veteran oil refining entrepreneur who took over at the head of the company in 2006, but who in 2011 stepped down as chairman and reduced his personal stake in the business below 3 percent.
He remains CEO and chairman at PBF Energy, a joint venture of private equity firms Blackstone and First Reserve. In November, PBF announced plans to raise funds through an initial public offering.
Petroplus' refineries are at Cressier in Switzerland, Petit Couronne in France, Coryton in the United Kingdom, Antwerp in Belgium, and Ingolstadt in Germany. Together, they account for about 4.4 percent of European Union capacity.
But given the amount of slack in the industry, the closures are not expected to create a major supply issue, but governments, particularly in France where elections are coming up next year, are anxious to avoid closure.
The European refining sector has been struggling for years due to poor margins and weak demand for fuel products. French major Total shut its Dunkirk refinery at the start of 2010 and Petroplus itself closed down its Reichstett plant in eastern France in May 2011.
Petroplus's 13 lenders, which include BNP Paribas , Societe Generale , Natixis Credit Suisse , Morgan Stanley and Deutsche Bank , continued to negotiate on Friday.
The company's stock price has halved since Tuesday's announcement of the freeze, but had gained 8.5 percent to 1.78 euros 1400 GMT on Friday amid hopes the provisional financing agreement might mean a positive solution may be found.
(Reporting By Marie Maitre; Additional reporting by Lionel Laurent in Paris, Emma Farge and Tessa Walsh in London, Pascal Schmuck in Neuchatel,; Editing by Andrew Callus)
Source: http://www.ibtimes.com/articles/20111230/petroplus-shutsoil-refineries-as-cash-runs-out.htm
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