”Swimming Downstream”

Can the Petroplus team repeat its US success in Europe’s consolidating oil refining industry? 

Tom O’Malley’s arrival on Europe’s oil refining scene a little over a year ago sent tremors
through the sector. After more than a decade leading consolidation in US oil refining, O’Malley
and his long-time cadre of close associates, including CFO Karyn Ovelmen, turned to Europe,
where they’d spotted an industry ripe for consolidation. After setting up Argus Atlantic Energy to
look for acquisition targets, the O’Malley team was quickly drafted by a private equity
consortium to run Petroplus - a relatively small, struggling refining and trading outfit. They have
since turned it into Europe's largest "pure-play" oil refiner and marketer through three big plant
acquisitions totalling nearly €2 billion. 

Already, Petroplus is the clear leader among independents in consolidating one of Europe's
largest manufacturing industries. 


The big question for Petroplus now - also one of its biggest risks - is whether it can maintain
the momentum. It's a company operating under the weight of very high expectations in an
overheated M&A market. Having expanded the balance sheet by more than two-and-a-half
times (to about €3 billion capital employed) and Ebitda nine fold to €480m in a year, investors
and analysts expect Petroplus to pick up at least one plant currently for sale (see "Everything
must go!" on page 21) within the next 12 months, and for as good a price as it bought the fir t
three plants, in order to add another 25% or more to Ebitda.

And they'll want more after that. 


As Andrew Bowman, Morgan Stanley's European refining
analyst, puts it: “Petroplus' value-creation strategy is highly reliant on replicating its early
success in securing European refining capacity at an attractive price. However, with other
European refiners – many cash rich but lacking in opportunity, such as Saras of ltaly – now
looking to acquisitions to fuel growth, prices could be pushed up.” 



lndeed, €6 billion Saras, controlled by Massimo Moratti best known in his home country as the
owner of top soccer club Inter Milan - has acknowledged that it is looking to buy refineries.
After annual results in February, Saras' CFO, Corrado Costanzo, said, "We want to grow, we
have firepower to grow [and] we are focused on refining. But there may be some opportunities
in retail, power.” 



As Costanzo 's caveat indicates, most of Petroplus' closest competitors, while they may want
to pursue refinery consolidation, are wary and busy diversifying. Many of these companies are
still family controlled, or recently privatized by governments, and may not relish entering into a
battle for assets with aggressive new competitors.


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