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Luberef’s net profit jumps 22% as base oil crack margins rise

Luberef’s net profit jumps 22% as base oil crack margins rise
Image courtesy of Luberef

Saudi Aramco Base Oil Company, known as Luberef, has reported a 22% increase in net profit for the first half of 2023, reaching SAR901 million (USD240 million). This growth is attributed to a decrease in zakat—a tax based on the net worth of the entity and one of the five pillars of Islam—and income tax expenses following the company’s listing, coupled with an increase in base oil crack margins.

Base oil crack margins rose by 27% in the first half of 2023 to SAR2,364 (USD630.60) per metric ton (Mt), from SAR1,851 (USD493.76)/Mt during the same period last year. However, this was down 26% from the second half of 2022, when base oil crack margins reached a historical high of SAR3,198 (USD853.07)/Mt.

Base oil crack margins, also known as oil crack spreads, are a measure used in the oil industry to determine the profitability of refining crude oil into various products. They represent the difference in value between the crude oil and the petroleum products that are derived from it. In the context of base oils, the base oil crack margin would refer to the difference in value between the crude oil and the base oils that are produced from it.

Base oil sales volumes were down by 11% in the first half of 2023, however, to 607,000 Mt, from 683,000 Mt during the same period a year ago.

Luberef, a joint venture between Saudi Aramco and Jadwa Industrial Investment, operates two production plants on Saudi Arabia’s west coast. The company specialises in producing base oils used in lubricants for motor vehicles, ships, and industrial machinery.

The company’s board of directors has approved a performance-linked dividend policy, aiming to distribute between 60% and 80% of the company’s annual free cash flow. This decision takes into account capital expenditures, the company’s ability to fund its commitments, including growth capital plans, and the company’s financial position.

In addition to its financial achievements, Luberef has also received recognition for its performance. The company was ranked among the Middle East’s Top 100 Listed Companies for 2023 by Forbes Middle East Magazine. According to Forbes’ classification, Luberef ranked 72 in the Middle East. The ranking was based on several factors, including market value, sales, assets, and profits.

In February 2023,  Luberef announced an ambitious expansion project for its Yanbu facility. The company has signed an engineering, procurement, and construction contract with PETROJET Co., valued at SAR555 million (USD148 million). The project, known as Growth II, aims to maximise the potential production capacity of the existing units at the Yanbu refinery. By 2025, the facility is expected to produce 1.3 million metric tons of base oils.

The expansion will primarily focus on increasing the production of Group II base oils. However, it also introduces the possibility of producing Group III base oils. This strategic move will provide Luberef with the flexibility to adjust its production based on market demand, allowing it to produce additional Group II and Group III base oils as needed.

This expansion project is part of Luberef’s ongoing commitment to strengthen its position as a leading supplier of high-quality base oils.