Go and read their annual reports (search using CTRL F for derivatives / notional amount), all hedging contract has approximately 24 months for maturity.

Posted by MoneyMakers > Aug 31, 2022 3:43 PM | Report Abuse

Aiyoyo where got HY hedge longterm 1yr at same hedged price

Q2 is 1st time show huge ‘pending’ 1.07Bil hedging loss (new hedge position entered @ not reflected in any prev QR) - means their hedging contract shortterm basis

Hedged price also change with new contract entered lo

For layman, one can view that HY has an inventory (crude) of 6 million barrels where they hedged at say 125 USD/brl by end if Q4 21.

If by end of Q1 22, the market inventory value is at 120 USD/brl.
They will report this as hedging loss of :

(125 - 120) x 6 million barrels
= 132 million MYR loss

If by end of Q2 22', the market inventory value is at 100 USD/brl
They will report this as hedging loss of :
(125 - 100) x 6 million barrels
= 660 million MYR loss

If by end of Q3 22', the market inventory value is at 125 USD/brl
They will report this as hedging loss of :
(125 - 125) x 6 million barrels
= 0 million MYR loss

If by end of Q4 22', the market inventory value is at 130 USD/brl
They will report this as hedging loss of :
(125 - 130) x 6 million barrels
= 132 million MYR GAIN!

The above is true as long as they kept the same inventory and did not utilize it for sales at market value on any of the qtrs above.

The maturity date of the hedging contract is the deadline where they have to realize it as sales. Once they make it as sales, they will be paid as per market value and that is when the hedging loss or gain above will be realized and reported on P&L.

Say in Q1 22 they had decided to sell at market value. They would have been paid 120 USD x 6 million barrels = 720 million USD

On their hedging contract they have to pay the same 6 million barrels at 125 USD/brl = 750 million USD

(the hedging contract simply means you need to pay the agreed amount (price) before maturity and take hold of the 6 million barrels)

The difference in cash flow; 720 million (IN) - 750 million (OUT) = - 30 million USD is the hedging loss that would go to P&L.

We can see from above the loss reported on unrealized Hedging may never take place at all and be reported on P&L as they have plenty of time for the market pricing to match again their hedging price.

HY does hedging on the crack and also on the inventory.

If the hedging is done on inventory, you can see hng33's explanation.

If the hedging was done on margin, you can see my explanation. It can be purely gasoline or any combination of the refined products. But, gasoline fits the changes best for ease of explanation here.

Its most likely combination of both inventory and crack / margin.


Posted by hng33 > Aug 31, 2022 11:43 AM | Report Abuse

Based on Q2 revenues and cost, hengyuan realize crack spread around USD 28, which in accord to average crack spread range from Mar to May crack for gasoline+ diesel + jet fuel. Hengyuan realize pretax profit RM 900m.

The next Q3 result comprises of crack spread june to Aug, average crack spread for gasoline + diesel + jet fuel is around USD38. Therefore, it can extimate than hengyuan upcoming Q3 pretax profit is RM 1.2 billion. EPS = RM 3

The hedging position will revert back from loss to gain as crude oil, feedstock cost, fallen from USD 135 in Q2 to USD 105 in Q3. Hengyuan NTA will booster significantly from RM 5.2 to + RM 3( from reversal hedging) + Q3 EPS RM 3 - - - - > total NTA for hengyuan RM 11


Posted by probability > Aug 31, 2022 9:16 AM | Report Abuse X

The most likely commodity hedging that caused the unrealized derivative loss is the Gasoline.

Note that the crack spread of gasoline jumped from 10 USD/brl to 32 USD/brl from Q4 21 by end of Q2 22

Say they hedged 10 million barrels 'gasoline - brent' crack by end of 2021 (considering the intent to secure relatively good margin in Q4 21' compared to avg of only 7 USD/brl last few years).

They would have bought brent crude at 100 USD and sold gasoline at 110 USD/brl in futures market with maturity of 2 years (end of 2023).

The above means they have a margin swap hedging contract valued at 10 million barrels x 10 USD/brl = USD 100 million expiring by Dec 2023.

Now by end of Q2 , the gasoline margin had expanded to 32 USD/brl.

They would need to mark to market the hedging contract status by end of Q2

This means they will report an unrealized hedging loss of 10 million x 22 USD/brl (crack expansion from their hedging to 32 from 10), which equal 220 million USD.

Now by end of Q3, if the present crack maintains for gasoline, the crack would drop back to 10 USD/brl resulting with zero hedging loss.

They can choose to realize the hedging by this qtr without affecting the P&L at all or they can do it when another opportunity arise before end of 2023 (but they must realize before the maturity).

@sharemarket21, i can almost confirm that Q3 EPS should be exceeding RM 3

Dear all,

just so that you dont misinterpret what shared by Zhuge above, kindly use the below as a very fair guidance for Q2 results as per my discussion with Johnzhang earlier.

The derivative loss, will equally match the gross profit that will be reported higher than 1,056 below which can possibly hit 1.4 billion above.

Expect Q3 PAT to be higher than Q2 as all the derivate loss will disappear by then.


Posted by Johnzhang > Aug 14, 2022 4:15 PM | Report Abuse

Hi probability, Thanks for the explanation.

Total expenses after GP (ie manufacturing, Adm, Dep & Amortisation, Finance) was $95M for Q1 2022, $100M per qtr average for 2021 and $106M per qtr average for 2020. Your $80+100 M = $180M expenses for Q2 is well above the actual in recent qtrs and therefore with huge buffer built-in.

Your estimated GP is $1,056 M
less hedging loss ($100M)
less Expenses ($180M)
-------------------------------------
PBT $776M

Tax $100m @24% ($24M)
Tax $676M @33% ($223M)
-----------------------------------------
NPAT $529M
EPS $1.76

The upside are :
1. lower expenses than the $180M built-in the calculation
2. Higher GP from significantly higher Diesel yield (46 vs 34%) and lower Fuel oil.

The reservation i have if the Management's actual hedging deviate from the model described by you. Let's wait for the QR with much excitement.

We look forward to the exciting QR.



Posted by probability > Aug 14, 2022 4:39 PM | Report Abuse

Well summarized John, thanks

Any higher GP reported than $1,056 will result equally higher hedging loss to give back the same after hedging loss of $956.

he he..nice one newbie8080

@sslee, ok got it. Its exactly matching the yield they mentioned on the Q&A...thanks

https://corporate.exxonmobil.com/-/media/Global/Files/crude-oils/Tapis/Crude_Oil_Tapis_assay_pdf_new.pdf

ha ha, they did say its extra light..

Posted by Sslee > Aug 29, 2022 10:59 PM | Report Abuse

https://corporate.exxonmobil.com/Crude-oils/Crude-trading/Tapis

@sslee, did not get when you said 'Tapis cut vol %'

referring the Q&A , i do believe their statements on the yield

it appears like Tapis is very sweet and light (shorter hydrocarbon lengths avg)

very interesting, got such diff MFRS accounting also

Posted by Rabbit2 > Aug 29, 2022 10:21 PM | Report Abuse

@Sslee
Agreed that derivative losses will be reversed but it's not a provision. It is merely a marked to market losses as at end June to reflect the current contract price in the market. This will eventually be reversed and replaced with actual periodical settlement.

If HRC and Petron consistently apply its hedging strategy and based on today's 29 August cut off, most losses will be reversed and likely there is a marked to market gain by now.

Accounting standards are trying hard to force all companies to reflect their numbers based on current fair values but it comes with unintended consequences in particular to those companies that are entering derivatives for hedging purposes.

If both HRC and Petron apply new hedge accounting rules under MFRS 9, these marked to market losses/gains could possibly be reflected under other comprehensive income instead of profit or loss.

That's my thought.

U.S. energy secretary urges refiners not to increase fuel exports

Sat, August 27, 2022

https://finance.yahoo.com/news/u-energy-secretary-urges-refiners-180001860.html

The U.S. Energy Secretary urged domestic oil refiners this month to not further increase exports of fuels like gasoline and diesel, adding that the Biden administration may need to consider taking action if the plants do not build inventories.

U.S. refiners have boosted oil product exports this month as domestic crude oil production rose and global fuel demand continued to recover.

Energy Secretary Jennifer Granholm, in a letter sent Aug. 18, urged seven refiners including Valero, ExxonMobil and Chevron, to build supplies of fuels as the United States enters peak hurricane season.

US Petroleum Exports at All-Time High as Overseas Crises Deepen

https://finance.yahoo.com/news/us-petroleum-exports-time-high-160300893.html

The US shipped out the most crude and refined-oil products in three decades as energy-starved economies increasingly turn to American supplies to stave off shortages.

More than 11 million barrels of crude and products such as diesel fuel left US ports on a daily basis last week for overseas markets, government data showed on Wednesday. That was the most in data going back to February 1991.

Diesel led the surge with a 20% jump in exports while crude outflows exceeded 4 million barrels day for a second straight week -- the first time that’s happened since lawmakers lifted a decades-old export ban in late 2015.

Europe and Asia are grappling with some of the worst energy crises in history, and oil supplies could soon get tighter. Saudi Arabia’s oil minister earlier this week said the OPEC+ alliance would consider production cuts to address the dislocation between futures trading and fundamental supply-and-demand forces.

Post removed.Why?

i thought it was a fashion show here comparing underwears...anyway i better dont masuk campur too much..

will escape from here now!.


Posted by CharlesT > Aug 28, 2022 3:47 PM | Report Abuse

U want me to tell u the colour of my underwear today or not?

last remaining dinosaurs of i3 looks like..hope they dont extinct

Just record all your buy and sell transaction on your blog and compare for a year on the % return...apa macam?

others also can join

i wish both of them show their skills by showing real life trading updates here....

Post removed.Why?

I seriously cannot see a more 'perfect storm' to push HY & PetronM share price up above RM 10 soon...

Sslee, Johnzhang...HOLD DAMN TIGHT!

@abc333. thanks

U.S. energy secretary urges refiners not to increase fuel exports

Sat, August 27, 2022

The U.S. Energy Secretary urged domestic oil refiners this month to not further increase exports of fuels like gasoline and diesel, adding that the Biden administration may need to consider taking action if the plants do not build inventories.

U.S. refiners have boosted oil product exports this month as domestic crude oil production rose and global fuel demand continued to recover.

Energy Secretary Jennifer Granholm, in a letter sent Aug. 18, urged seven refiners including Valero, ExxonMobil and Chevron, to build supplies of fuels as the United States enters peak hurricane season.

Diesel Pinch Looms as World Seeks Relief From Pricey Gas

26 August 2022

- Fuel stockpiles thin at key hubs in Europe, US and Asia
- Profits for making diesel poised to surge as demand increases

https://www.bloomberg.com/news/articles/2022-08-25/diesel-pinch-looms-as-world-seeks-relief-from-pricey-natural-gas#xj4y7vzkg

next qtr sure even higher...just sapu the call warrants!

Posted by Sslee > Aug 27, 2022 5:51 PM | Report Abuse

The best is still let the quarterly finamcial report speak for itself.
Petronm
Q1 EPS RM 39.4 cents.
Q2 EPS RM 68 cents

thanks John & Sslee for the clarifications

actually i dont mind having a Teams meeting discussion to have our understanding all aligned :)

it will be great if sslee creates a whatsapp group for all 3 of us

what you say sslee?

but at this moment i am just lazy to study / investigate to understand this...

lets just wait for the results

they will not call it as realized gain in hedging in next qtr if price goes to the same level they hedged, but zero hedging loss and reduce the gross profit by the same amount

@sslee, what you are saying is the same thing.

The unrealized portion of the hedging loss (what John said above) will become a gain if the price of the commodity goes back to the price level they hedged by the next qtr.

But, the gain is not a real gain - as they will report a lower gross profit (due to cash market transaction) by the same magnitude.

@MM, only complex refinery can try to improve yield of diesel by breaking down (catalytic cracking) of longer chain hydrocarbon like fuel oil...

but increasing yield from 35 - 46% is not enough... see the maths i had presented -its simply not possible.

The shortage of diesel has been there since Feb 22'this years and clearly present refinery cannot overcome this.

All refinery running full swing just to produce diesel and thats why the gasoline price had come down as its inevitably produced just like fuel oil which nobody wants and having negative crack spread

in income statement, they are trying to tell 'what is the true present status' of their income if current condition of the commodity prices maintains going forward...

This is a logical assumption to make (that current prices maintains) to see the consequences in advance and tell the shareholders via the financial statement (Income statement) - though it is yet to happen.

@John, FYI

Posted by probability > Jun 12, 2022 2:08 PM | Report Abuse

Sample business transaction of HY
................................

Say John you are the Shell retailers in Malaysia

Myself and my twin brother represent HY. I deal with CASH MARKET and my twin brother deals with FUTURES MARKET.

Our sales volumetric achievable in a month is 4.0 million barrels, 1.0 million barrels per week.

1) CASH MARKET transaction done by me;

I deliver refined oil to you exactly every Friday at 1 million barrels.
Every week at the same time Friday, i also buy crude oil from Petronas at the same volume 1.0 million barrels.

You pay me as per current market value of refined oil (spot price matching singapore hub crack spread) and i pay petronas as per the current brent spot price.


2) FUTURES MARKET transaction done by twin brother. You can view this exactly like stock market.


Every time i deliver 1 millon barrel to you, my brother will clear back 1 million barrels from the futures market buy selling back at current futures the 1 millon barrels he had gone LONG 4 weeks ago.

At the same time he will also clear 1 million barrels refined oil by buying back at current market the refined he had gone SHORT 4 weeks ago.


If my twin brother lost money in Futures market that he is forced to do (cover back his long and short positions) due to my cash market transaction in parallel, its derivative loss. If he had made money, then its a derivative gain.

@John, the word 'outstanding commodity hedges' means to me that this is transaction in 'futures market' that has not been offset with the expected 'cash market' transaction in the coming month at prevailing market prices...

This means, the provision will be effective if the prevailing commodity price maintains in Q3..

Its unrealized - coz they have not cleared the hedging portion.

Remember the twins transaction concept i mentioned earlier. This is what i can think at the moment.

OK thanks for the info John. Not coming from accounting background, this realized and unrealized effects is something i never placed effort to understand till now..plain lazy..:(

have a feeling what you are saying is true...

let hardworking sifu sslee also comment :)

90% sure he was the one who asked all the Q&A to petronM earlier

Posted by Sslee > Aug 27, 2022 8:36 AM | Report Abuse

https://www.petron.com.my/investor-relations/corporate-governance/

You can read the rest on above link.
6.
Click on: Questions and Answers MEW!

Interesting..could be true John.

To me the moment you realise a derivative loss realized or unrealized, then you have pegged the margin with a new level (mark to mark)...

so the next report will reflect the market margin at the end of June 22', if it had not changed further by end of Sept 22''

Posted by Johnzhang > Aug 27, 2022 11:07 AM | Report Abuse


That’s what I think too. The provision for hedging loss of $166.8 mil made in Q2 stands good chance for write back as additional profit in Q3 if crude in Q3 is flat or lower . Is my understanding correct?

@sslee, appreciate your comments on the above too

The above means PetronM is making huge margin at their refinery even using Tapis at a premium to Brent.

We can expect superb results for Hengyuan...

60% (diesel + Jet fuel) crack at say avg 40 USD/brl
20% (gasoline) avg 20 USD/ brl

If we use 47 kbpd, sales per qtr is :

= 47,000 bpd x 90 days
= 4.2 million barrels

Gross profit from Diesel + Jet fuel:

= 40 USD/brl margin x 4.2 million barrel/qtr x 60%
= 443 million MYR

Gross profit from Gasoline:

= 10 USD/brl margin x 4.2 million barrel/qtr x 20%
= 40 million MYR

Assuming the fuel cost offset the rest of the refinery product margin, the refinery contribution to gross profit:

= 443 + 40
= 483 million

Before the above changes, when refinery margin was low, retail contributes approximately 120 million gross profit

If we add the above two, we obtain about 600 million gross profit as reported.

ok thanks John. If thats true, then actual gross profit is 415 + 207 = 622 million MYR

thats very interesting as i firmly believe derivative loss will disappear once the crack and oil price steadies...

for HY the gross profit shown in income statement is before accounting derivative loss / gain

at the bottom pf page 14 under section 18, they do seem to be saying its accounted on the gross profit

if thats true, then petronm actual gross profit without derivative loss is much greater then?

yes John, but i am trying to tally this with the Income statement

does that mean the gross profit of 415m is after accounting this loss?

or is it accounted in 'óther expenses' after 'finance cost' on income statement?


Posted by Johnzhang > Aug 27, 2022 10:29 AM | Report Abuse

@probability, go to note 18 where it mentioned Profit before tax after charging the following:
Derivative realized loss $207.86 mil
Unrealized loss $166.8 mil.

@sslee, is the gross profit reported in Q2 of 415 million accounted the derivative loss (realized 207m & unrealized 166m) shown on section 18 of the financial report?

i cant see where it is accounted on the income statement

if its accounted, then PetronM is indeed benefitting significantly from the Diesel crack spread rise

Revised below:
............

@sslee, 60% (diesel + Jet fuel) crack at say avg 40 USD/brl minus Tapis premium of 20 USD/brl, should provide at least a margin of 20 USD/brl in Q2 for PetronM.

If we use 47 kbpd, sales per qtr is :

= 47,000 bpd x 90 days x 60%
= 2.5 million barrels

As such gross profit from Diesel + Jet fuel ALONE:

= 20 USD/brl margin x 2.5 million barrel/qtr
= 220 million MYR

Gasoline margin was also high in Q2. As such something is missing or not accurate on their yield info from the AGM i think

Crack rose to USD 46.18 / brl as predicted...

Posted by probability > Aug 26, 2022 11:15 PM | Report Abuse X

live data shows refining margin is further rising, we will see a further rise in Diesel crack spread soon:

https://www.tradingview.com/symbols/NYMEX-GZ1!/

Extract from a news in June 22' concerning Diesel margin:

https://sg.finance.yahoo.com/news/red-hot-asia-gasoil-margins-075310521.html

Refining margins for the benchmark 10 ppm gasoil in Singapore, which have soared nearly 63% in the last two weeks, hit $55.77 a barrel over Dubai crude on Monday, an all-time high according to Refinitiv data that goes back to 2014. Gasoil is currently the top money spinner for Asian refineries.

Extract from a news in June 22' concerning Diesel margin:

https://sg.finance.yahoo.com/news/red-hot-asia-gasoil-margins-075310521.html

Refining margins for the benchmark 10 ppm gasoil in Singapore, which have soared nearly 63% in the last two weeks, hit $55.77 a barrel over Dubai crude on Monday, an all-time high according to Refinitiv data that goes back to 2014. Gasoil is currently the top money spinner for Asian refineries.

refer Page 22 of the annual report for complete picture on HY products.

As a complex refinery HY has to ability to adjust yield of its products. HY produces 46% Diesel on this table.

https://klse1.i3investor.com/servlets/staticfile/422363.jsp

yes exactly..

Posted by sonyx > Aug 26, 2022 10:39 PM | Report Abuse

And is it correct to interpret that the basket of products would then be referred to let say (Diesel (which is 46% of mix) multiply with the market selling price based on the index + Fuel * D1N1 + ....)?

Asia's record level margin ever was in June 22' where diesel margin hit above 58 USD/brl.

Due to HY hedging effects the profit will fall into July.

July crack was relatively lesser and this will fall into Aug 22'.

Now crack has averaged quite good for Aug and this will reflect on Sept 22.

As such Q3 is secured with PAT that is very likely to be higher than Q2 results.


Posted by sonyx > Aug 26, 2022 10:30 PM | Report Abuse

Thanks for the prompt response @Probability. Ok looks like the Diesel mix should keep the blended crack margin intact for Q3 2022.... at least for now

Refer to the notes on how the weighted average refining margin is calculated:

Weighted Singapore product prices (for a standard Lytton Refinery basket of products)

Less: Reference crude price (the Ampol reference crude marker is Dated Brent)
Equals: Singapore Weighted Average Margin (Dated Brent basis)

https://www.listcorp.com/asx/ald/ampol-limited/news/2q-2022-lytton-refinery-performance-and-trading-update-2736295.html?ref=more_news


The Lytton Refiner Margin (LRM)1 for the second quarter reached the unprecedented level of US$32.96 per barrel, materially higher than the US$10.59 per barrel realised in the first quarter. The significant increase in Singapore Weighted Average Margin (SWAM) was the key driver of the increase, reaching US$33.62 per barrel for the quarter

@sonyx, refer Page 22 of the annual report for complete picture on HY products.

As a complex refinery HY has to ability to adjust yield of its products. HY produces 46% Diesel on this table.

https://klse1.i3investor.com/servlets/staticfile/422363.jsp

the above is just for uncle's record