Feasibility Study for Chinese HYT Upgrading Project
Cost Models for Genoil HYT Project
Background on HYT Project
Genoil and HYT have agreed to build a 19,500 bpd Genoil Hydroconversion Upgrader (GHU®) unit. The purpose of this $170 million project is to enable the refinery to use lower cost feedback. Instead of buying light, sweet crude to refine, HYT will be able to process a mixture of low-value existing refinery residues plus cheaper heavy sour crude oil. It is expected that this process will result in significant cost savings to HYT.
The purpose of this release is to demonstrate the economics of the HYT project to prospective financial partners and shareholders as Genoil continues the process of financing the project. Recent uncertainty in the world's economic outlook has created extremely volitile oil/feedstock prices. Therefore, Genoil has analyzed a wide range of oil/feedstock prices, using data from October 28, 2008 and December 8, 2008. During this time the price of West Texas Intermediate (WTI), the world market benchmark for crude oil prices, has fallen by 30%, from $62.80 per barrel to $43.69. Still, the Company's CHU project with HYT remains extremely profitable. CEO Interview
Overall Economics of HYT Project
| TABLE 1 | HYT Prices at 28-Oct-08 |
HYT Prices at 8-Dec-08 |
World Market Prices 8-Dec-08 |
|||
US$ (Million) |
Per barrel | US$ (Million) | Per barrel | US$ (Million) | Per Barrel | |
| Product Sales* | $530.9 | $82.22 | $519.7 | $80.47 | $303.6 | $51.19 |
| Feedstock | $303.5 | $51.18 | $275.7 | $42.69 | $219.4 | $33.49 |
| Gross Profit | $200.4 | $31.03 | $244.0 | $37.78 | $111.2 | $17.70 |
|
Operating Expenses |
$10.3 | $1.60 | $10.3 | $1.60 | $10.3 | $1.60 |
| Depreciation | $16.8 | $2.60 | $16.8 | $2.60 | $16.8 | $2.60 |
| Profit before Interest & taxes |
$173.3 | $26.83 | $216.9 | $33.59 | $84.1 | $13.02 |
| Income Tax (25%) | $43.3 | $6.71 | $54.2 | $8.40 | $21.0 | $3.44 |
| Net profit before interest |
$130.0 | $20.12 | $162.7 | $25.19 | $63.1 | $9.77 |
| Cash Profit (before interest & depreciation) |
$146.8 | $22.73 | $179.5 | $27.79 | $79.9 | $12.37 |
|
Project Returns |
||||||
|
IRR - After Debt |
57% |
68% | 30% | |||
| IRR - Before Debt Repayment |
63% | 74% | 37% | |||
| Bank Debt |
$70.0 |
$70.0 | $70.0 | |||
| Interest Rate on Bank Debt |
15% | 15% | 15% | |||
| Term of Debt (Years) | 5 | 5 | 5 | |||
| Annual Repayment | $20.9 | $20.9 | $20.9 | $3.24 | ||
Note: *Product sales per barrel are per feedstock barrel
HYT Project Economics
|
TABLE 2
Products |
HYT Prices at 28-Oct-08 |
HYT Prices at 8-Dec-08 |
World Market Prices |
||||
| Quantity (1000 bbls) |
US$ (Million) |
Per barrel |
US$ |
Per barrel | US$ (Million) |
Per barrel | |
| Gasoline | 106 | $9.7 | $91.25 | $8.2 | $77.33 | $3.9 | $36.77 |
| Light Diesel | 1,883 | $173.7 | $92.25 | $170.6 | $90.60 | $102.6 | $54.50 |
| Heavy Diesel | 1,360 | $120.8 | $88.85 | $118.6 | $87.26 | $71.4 | $52.49 |
| Gas Oil | 2,533 | $217.3 | $85.78 | $213.4 | $84.25 | $143.9 | $56.80 |
| Other Products | 134 | $9.4 | $70.61 | $8.9 | $80.48 | $8.8 | $51.20 |
| Total Products | 6,016 | $530.9 | $88.26 | $519.7 | $86.39 | $330.6 | $54.96 |
| Feedstock Prices: | 6,458 | $330.5 | $51.18 | $275.7 | $42.69 | $219.4 | $33.49 |
Sources and Assumptions for Product and Feedstock table:
1. World Market prices for products are daily averages of spot prices as reported by the US Energy Information Agency (“EIA”), as follows:
a. Gasoline: Singapore conventional premium gasoline;
b. Light Diesel Oil: Los Angeles, CA #2 Diesel
c. Heavy Diesel Oil: Price assumed as same ratio HYT Heavy to Light Diesel Oil price
d. Gas Oil: Singapore Gas Oil
e. Other Products: Prices assumed same as HYT prices for other prices: condensate, sulphur, liquid ammonia, and liquid nitrogen.
2. HYT feedstocks are atmospheric residues and M180 Crude. World market price for feedstock taken as EIA reported average daily spot price for Mexico Maya (for weeks ended December 5 and December 12, 2008), lowest API crude reported regularly by EIA. Note that Mexico Maya is presumably a better quality and more valuable feedstock than HYT feedstocks, since its API is 22, while that of HYT’s feeds are only 16.9 for atmospheric residues and 9.8 for M180. Hence, the price of Mexico Maya may overstate the world market price for feedstocks comparable to those at HYT, and hence understate the profitability of an investment using world market prices.
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The disparity in the price per barrel of oil, regarding the HYT model, compared to the world market price, reflects the Chinese price controls. While there is no certainty that these price supports will be sustained in the future, the Company’s ROI at world market prices from this project would produce a 30 percent ROI.
Genoil's Chief Executive Officer, Mr. David Lifschultz, stated “This report is a very important milestone for the Company, as we now have public economic assumptions that demonstrate to HYT, investors and other potential customers the strong economics of Genoil’s GHU. This report is the culmination of a lot of hard work and we are excited about its conclusions.
“As you can see from the tables above, the HYT project and equally important Genoil’s Hydroconversion Upgrader represents a significant opportunity to profitably upgrade heavy oil, despite current low oil prices. In fact, despite a 71% decline from the high WTI of $148.00, the economic model of Genoil's upgrading process is still significantly profitable. Future oil price fluctuations will continue. Despite this, Genoil’s Hydroconversion Upgrader continues to offer Chinese customers compelling economic returns.
“This is a very difficult environment to seek financing but we are confident that potential investors will understand the compelling economics of the project. We are working with banks, institutional investors and other financial firms to raise the $65.0 million needed to finance the HYT project.”
Mr. Lifschultz concluded, “One of the fascinating values of Genoil is our portfolio of technologies, which are on the verge of transforming from development to commercialization. We continue to progress in commercializing our GHU and further commercialize our oil/water separation technologies such as our Crystal Sea technology, which has installed units around the world operating flawlessly for over ten years in Romania, the United States for the armed forces, and Australia. Further, the Crystal Sea is approved by the United States Coast Guard for use in all United States ports and inland waterways. At present we are in discussion with traditional shipping customers and non-traditional customers for our Crystal Sea product line of oil water separation technology. We look forward to our future and the opportunity to discuss the Company with investors at our conference call later today.”
ABOUT GENOIL
Genoil is an international engineering technology development company based in Alberta, Canada that develops innovative hydrocarbon, oil and water separation, and marine technologies.
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