PTQ Q4 2022 Issue

9M 2009 Clean R&M EBITDA

9M 2011 Clean R&M EBITDA

260

240

220

200

(5)

+10

+65

180

+15

(15)

+10

160

(35)

+30

140

+50

(20)

120

+30

100

(150)

+35

Gross margin

Energy eciency

Opex

240

260

Figure 2 Excerpt from Petroplus Analyst Day Presentation, Dec 8, 2011 shows $35 million foreign exchange loss and $20 million excess catalyst expense (highlighted in yellow), wiping out hard-earned energy and Opex cost reduction benefits 6

out in our multi-client standardised catalyst testing pro- gramme, but it has been proven that it could be done to produce a good two-dimensional ranking matrix for FCC pretreat catalysts, and would be done if there was sufficient demand for such a programme. Independent data on supplier services The best assessment of supplier service is based on the refiner’s first-hand experience working with their cata - lyst suppliers. To supplement this, the annual catalyst test reports’ Competitive Analysis section also includes case stories of successes and failures in supplier performance across the industry. Know-how, responsiveness, and ease of doing business are the most common points of differen- tiation that can be assessed qualitatively and are usually considered most important in supplier selection. Independent data on catalyst cost and competitive pricing The fill cost is the important bottom line item. However, the annual catalyst test reports’ Competitive Analysis section also includes hard data and analysis on suppliers’ cost of production, profitability, and competitive pricing, which are popular topics, especially among procurement specialists, to help a refiner understand their position as a buyer com - pared to others in the industry. High cost of risk aversion A theme running through this discourse is that undue risk aversion hurts everyone by obstructing the opportunity to improve profit contribution, supply flexibility, adoption, and replication of good new catalysts. Stories abound about how risk aversion triggered the ruin of one big refiner. The story of Petroplus shows the high cost of excessive

risk aversion, bureaucracy, and entrenched interests in cat- alyst selection. Petroplus, which was the largest indepen- dent refiner in Europe, was struggling with profitability in difficult times but making good progress toward reducing operating costs in its refineries. It had committed to achiev - ing operating cost savings of $80 million/year within three years. In year one alone, $50 million in operating expense savings were achieved through staffing level reductions (both employees and contractors), pension plan adjust- ments, and maintenance cost efficiencies. But those cost savings were completely wiped out by two big, bad sur- prises in 2011. They were:  Negative foreign exchange impacts ($35 million)  Over-runs on catalyst expense ($20 million). These unexpected cost increases were significant fac - tors in the Petroplus insolvency and ensuing shutdown of five European refineries in January 2012. 6 Figure 2 shows how these bad surprises (highlighted red bars) wiped out all the other hard-earned savings from operating expense reductions. For several years prior to its insolvency, Petroplus employees knew they had huge opportunities for margin improvement and cost savings in catalyst selection and procurement. Engineers from three Petroplus refineries were pressing higher-ups to join the Hoekstra Trading user group and adopt a new strategy. But their efforts were thwarted by middle management resistance to change across the Petroplus group in how catalyst decisions were reached and contracts awarded. Historical relationships, personal connections, and old working methods were obstructions that proved too big to break. In February 2011, the Petroplus Coryton UK refinery, acting on its own, purchased all our annual catalyst test reports. It led the way toward improving profit contribution

PTQ Q4 2022