Dear Haniza Abdul Hamid
I would like to submit in advance my questions for the upcoming HRC 64th AGM schedule on 24 may 2023.
First and foremost allow me to congratulate Surinderdeep Singh Mohindar Singh appointed to The Chair Board Whistleblowing Committee
My question to Surinderdeep Singh Mohindar Singh:
Question 1: What is the progress and status of my official report of malpractice, impropriety, misconduct or omission to HRC in-house Board Whistleblowing Committee dated: 31 Jan 2023?
A major turnaround is planned in the second half of 2023 to ensure we maintain operational safety and uphold plant integrity to deliver excellent results to all our stakeholders
Question 2: When is the planned plant shutdown date for this schedule major turnaround and the planned duration for this major turnaround?
Page: 32 and 33
However, turnover rates rose to 15.90% or 52 employees in FY2022 from 11.80% (40 employees) in FY2021 due to burgeoning employment opportunities as the economy continued to rebound, as well as heightened demand for skilled workers within the oil and gas industry.
Due to HRC’s reputed strong training and development culture, there have been concerted efforts by industry peers to target-hire our skilled certified workers.
Question 3: May I know the breakdown of these 52 employees per their department?
(Example of Department: Project and Engineering, Electrical and Instrumentation, Mechanical and Maintenance, IT, Production and Process, QA and Lab, Contract and Procurement, Safety, Health and Environment, HR and Admin, Finance and Account, Internal Audit, Commercial and Derivatives, etc)
The year ended with the successful completion of the Euro 4M unit. The unit, currently awaiting the issuance of the Certificate of Completion and Compliance to HRC, provides technology that will aid in upgrading cracked gasoline into Mogas. This ensures that HRC will benefit from more sustainable margins in the near future.
Question4: When can you expect to receive the Certificate of Completion and have this EURO 4M unit successfully commissioned and a performance test carried out?
Question 5: What is the original budgeted contracted sum and completion date for this EURO 4M project compared to actual completion date and sum spent on this EURO 4M project?
Question 6: Did Project Euro 4M suffer delay and cost escalation above budget? If the answer is yes then what were the reasons or omission, misconduct, malpractice, impropriety by top decision makers that caused the delay and over budget?
In the year under review, the Company reported a loss after tax of RM157.6 million compared to the previous financial year which recorded a profit after tax of RM82.7 million. Refining margins and crude prices continued to remain volatile during the year resulting in a full year average Current Cost of Stock margin (CCS) of USD0.47/bbl (FY2021: USD3.44/bbl) and gross profit margin of USD2.47/bbl (FY2021: USD 7.23/bbl) including the effects of crack swaps.
The Company recorded a total revenue of RM21.1 billion in FY2022 compared to RM12.0 billion in FY2021. The increase in revenue of RM9.1 billion or 75.8% was attributed to a 58.9% increase in product prices that averaged at USD125/bbl, coupled with a 9.4% increase in sales volume supported by better market demand.
Notwithstanding the higher revenue reported, gross profit fell to RM0.3 million (FY2021: RM1,044.7 million) affected by the higher plant production downtime, increased crude premium, and softening of Mogas cracks mainly in the second half of the year.
In FY2022, the price of Brent crude oil averaged at USD101/bbl, which was USD30/bbl higher than its corresponding FY2021 average.
Stock Holding gains for FY2022 (including the effects of commodity swaps) were USD0.58/bbl (2021: USD0.39/bbl).
Key takeaway from above:
The refining margin/crack spread (differences between price of Brent crude oil and sales price of petroleum products) is USD (125 – 101) = USD 24/bbl for FY 2022
But HRC actually purchased the crude at very high premium above Brent and result in Cost of Stock margin (CCS) of USD 0.47/bbl and gross profit margin of USD 2.47/bbl including the effects of crack swaps and reported a loss after tax of RM157.6 million
Question 7: What is Brent crude average for 2022 quarter 1, quarter 2, quarter 3 and quarter 4?
Question 8: What is volume (bbl) crude purchased for 2022 quarter 1, quarter 2, quarter 3 and quarter 4?
Question 9: What is the crude premium/discount paid above Brent (USD/bbl) for 2022 quarter 1, quarter 2, quarter 3 and quarter 4?
Question 10: What were the reasons or omission, misconduct, malpractice, impropriety by top decision makers to pay such a high premium above Brent crude for 2022 quarter 1, quarter 2, quarter 3 and quarter 4?
Page 88: Key audit matters
Valuation of derivatives
As at 31 December 2022, the derivative financial assets and derivative financial liabilities of the Company are RM116.5 million and RM892.6 million, respectively.
How our audit addressed the key audit matters
• Obtained confirmation from counterparties to ascertain the completeness of the outstanding derivative instruments;
Page: 122 Fair value hierarchy (continued)
Derivative financial instruments outstanding as at the reporting date are detailed below:
As at 31 December 2022
Notional Value: Fair Value
Derivatives USD’000: RM’000
Refining margin swap contracts, net: 235,068: (723,271)
Forward foreign currency contracts: 181,500: (12,659)
Commodity swap contracts: 119,734: (40,158)
Level 1: Level 2: Level 3: Total
RM’000: RM’000: RM’000: RM’000
Derivative financial assets:
- Refining margin swap contracts: - : 116,530: - : 116,530
Derivative financial liabilities:
- Refining margin swap contracts: -: (839,801): - : (839,801)
- Commodity swap contracts: - : (40,158): - : (40,158)
- Forward foreign currency contracts: - : (12,659): - : (12,659)
At 31 December 2022: - : (776,088): - : (776,088)
From FY2022 quarterly report:
Fair value gain/ (loss) on derivative financial instruments
Quarter 1: RM (432,206,000)
Quarter 2: RM (438,758,000)
Quarter 3: RM (364,570,000)
Quarter 4: RM (461,939,000)
FY2022: RM (1,697,473,000)
Questions to Auditor/Management
Question 11: How do you compute: Notional Value, Derivative financial assets and Derivative financial liabilities for Refining margin swap contracts, Commodity swap contracts and Forward foreign currency contracts?
Question 12: Who is/are the counterparties of Refining margin swap contracts, Commodity swap contracts and Forward foreign currency contracts?
Question 13: Are these counterparties reputable and well established financial institutes?
Question 14: Any prepayment and fee paid during contracts maturity cash settlement for Refining margin swap contracts, Commodity swap contracts and Forward foreign currency contracts?
Question 15: Out of this quarterly FY 2022 Fair value gain/ (loss) on derivative financial instruments. How much in quarter 1, quarter 2, quarter 3 and quarter 4 is from Refining margin swap contracts (Volume and per barrel gain/(loss)), Commodity swap contracts (Volume and per barrel gain/(loss)) and Forward foreign currency contracts (contracts amount and gain/(loss))?
Question 16: What were the reasons or omission, misconduct, malpractice, impropriety by top decision makers that resulted in Fair value (loss) on derivative financial instruments for 2022 quarter 1, quarter 2, quarter 3 and quarter 4?
Page 94: Inventories written down RM 82,989,000
Question 17: how to get stock holding gains for FY2022 (including the effects of commodity swaps) were USD0.58/bbl when inventories write down for FY 2022 is RM 82,989,000
Refining margin swap contracts (continued)
The effects of the refining margin swap contracts on the Company’s financial position and performance are as follows:
Carrying amount liability, net (RM’000): (830,596): (179,886)
Notional value (USD’000): 180,413: 265,421
Maturity date January 2023 to September 2024: January 2022 to September 2024
Hedge ratio (%): 100: 100
Change in fair value of designated hedging instruments (RM’000): (829,075): (97,395)
Change in value of hedged item used to determine hedge effectiveness (RM’000): 829,075: 97,395
Gross margin per barrel (USD): 9.50 to 36.10: 8.00 to 12.30
Question 18: Is it a typo error 2022? Should be 2023 Refining margin swap contracts: Notional value: USD 180,413,000, Maturity date January 2023 to September 2024 and Gross margin per barrel (USD): 9.50 to 36.10.
Question 19: Are the refining margin swap contracts how many % are based on Singapore Mogas 92 Unleaded (Platts) Vs Brent and on Singapore Gasoil (Platts) Vs Brent?
Question 20: Notional value: USD 180,413,000. Gross margin per barrel (USD) range 9.50 to 36.10: What is the total volume (barrel) and volume weighted average gross margin per barrel?
Question 21: Of the total volume, how many (barrel) and volume weighted average gross margin per barrel refining margin swap contracts mature in quarter 1, quarter 2, quarter 3 and quarter 4 2023?
Page: 155: DISCLOSURE OF RECURRENT RELATED PARTY TRANSACTIONS
Provision of technical advisory and consultancy services and research and development advisory services to HRC
1 January 2022 to 25 May 2022: RM 6,554,593
26 May 2022 to 31 December 2022: RM 13,246,469
Question 22: Please list down the technical services done and each technical services/jobs invoice bill to HRC?
Question 23: Are these related party transactions done at arm's length with proper quotations, vendors’ selection, work/performance specification, price negotiation, cost control, etc and compliance with HRC standard operation and governing procedures?
Page 138: An unrated medium term notes programme of up to RM 5,000,000,000 in nominal value (“MTN Programme”), which will be issued in tranches over a tenure of 30 years via bought deal or private placement.
First issuance of the MTN (“MTN Tranche 1”) under the MTN Programme amounting to RM 680,000,000 is repayable in installments over a 5-year period.
MTN Tranche 1 is subject to interest at KLIBOR + 1.35% per annum,
Question 24: The MTN Trance 1 RM 680,000,000, how many installment payments over a 5 year period and is the installment included interest and principal payment?
Question 25: Is the RM 5 billion MTN Programme tranches issued/drawdown utilization limited to working capital and CAPEX for HRC Port Dickson Refinery or can be used for Derivatives hedging and M&A (Mergers and Acquisitions) activities?
Dear Independent Non-Executive Director
Alan Hamzah Sendut
Surinderdeep Singh Mohindar Singh
Tai Sook Yee
I would like to draw your attention to below news article and compare with HRC quarterly financial performance:
Quarter 1: Profit/(Loss) before taxation RM 85,278,000
Quarter 2: Profit/(Loss) before taxation RM 897,257,000
Quarter 3: Profit/(Loss) before taxation RM (894,141,000)
Quarter 4: Profit/(Loss) before taxation RM (482,776,000)
Hyundai Oilbank offers 1,000% bonuses on upbeat earnings
Published : Jan 2, 2023 - 15:33 Updated : Jan 3, 2023 - 20:12
Hyundai Oilbank, one of South Korea’s leading refiners, said Monday that it handed out 1,000 percent of base salaries as bonuses to its staffers.
The company declined to disclose the specific amount of the salaries given. In 2021, its employees received an average of 121 million won ($94,800) per person including bonuses at a 600 percent rate.
The refiner’s lump-sum bonuses came in line with the refining industry’ stellar performance last year. In the third quarter alone, Hyundai Oilbank’s operating profit skyrocketed by 226 percent on-year to 2.8 trillion won. Adding the fourth quarter results, last year’s cumulative profit will increase even more, sources said
Questions for Independent Non-Executive Director:
I am shocked beyond words that in quarter 3 HRC report a Quarter 3: Profit/(Loss) before taxation RM (894,141,000) whereas In the third quarter alone, Hyundai Oilbank’s operating profit skyrocketed by 226 percent on-year to 2.8 trillion won
Question 26: With combined Independent Non-Executive Directors vast experience what were the reasons or omission, misconduct, malpractice, impropriety by top decision makers that caused this loss?
Question 27: With FY 2022 record breaking double digit refining margin/crack spread (differences between price of Brent crude oil and sales price of petroleum products) of USD (125 – 101) = USD 24/bbl. If HRC still makes losses then what hope can we have on Executive directors and top management of HRC?
Question 28: In your opinion who (executive directors and top management) should be held accountable, answerable and responsible for the loss?
Question 29: Which executive directors and top management heads need to roll for the loss incurred in 2022?
Lee Soon Sheng
PS: I expect my questions send on 5th Dec 2022 on Q3 result will also be answered during the AGM as per your email dated 30th Dec 2022:
Quote: “It was recommended to us that we publish the shareholder’s query at our upcoming AGM in 2023. This is to ensure HRC’s compliance with Paragraph 9.21(2)(b) of the Main Market Listing Requirements (“MMLR”) as well as the Guidance Note and FAQs on the Conduct of General Meetings for Listed Issuers, which requires questions posed by shareholders to be made visible to all meeting participants during the meeting itself and should be responded to.” Unquote