Puma Energy

Question 1

Who is Trafigura?

Answer 1

Privately-owned commodity trading group with worldwide activity in purchasing commodities as principal and selling to industrial consumers. In FY12 consolidated revenues were US$120bn, EBITDA US$1.8bn and net assets US$4.6bn.Trafigura owns48.5% of Puma Energy.

Question 2

Who is Puma Energy?

Answer 2

a vertically integrated midstream and downstream oil group active in the emerging markets of Africa, Latin America, Europe, the Middle East, Asiaand most recently Australia.

Question 3

What are Puma’s approximae Revenues and profits?

Answer 3

In FY12, Puma Energy?s revenue was US$8.6bn, for an EBITDA of US$0.5bn and NPAT US$0.2bn, with netassets of US$1.3bn.

Question 4

What is Puma’s international profile?

Answer 4

Puma Energy has operations in 35 countries worldwide, employs over 6,000 people directly and a further15,000 indirectly, owns and operates approximately 4.5 million m3 of storage capacity, and runs a network ofover 1,500 retail stations. Puma Energy?s facilities handle 21 million m3 of products a year.

Question 5

How has Puma Energy Grown?

Answer 5

Puma Energy?s growth has come organically and via targeted acquisitions

Question 6

How are Puma’s acquisitions typically financed?

Answer 6

Acquisitions are typically financedby short term shareholder loans from Trafigura (as bridge facilities) which are then refinanced into ring-fencedsecured facilities with longer tenors, and equity. Once targets are acquired, Puma Energy rapidly integrates thecompanies with the Puma brand to benefit from integration and economies of scale.

Question 7

What is Puma’s general strategy?

Answer 7

Puma Energy?s strategy is to concentrate on the midstream and downstream sectors in locations where the major oil companies are scaling back and/or focusing on the upstream market

Question 8

Who are the shareholders of PUMA Energy?

Answer 8

Puma Energy operates at arm?s length from its majority shareholders and strategic partners Trafigura (48.54%shareholding) and Sonangol Holdings LDA2 (30% shareholding). Other equity holders include Cochan HoldingsLLC (15% ownership) and other investors (6.46%).

Question 9

How did PUMA enter the Australian Market?

Answer 9

PEAH entered the Australian market in February 2013 via the acquisition of the Neumann and Ausfuelbusinesses, followed by the CCF purchase in June 2013.Acquisition costs for the three businesses and the Mackay terminal totalled $920m (shown below),

Question 10

What is the name of the Australian business of Puma Energy?

Answer 10

Puma Energy (Australia) Holdings Pty Ltd (PEAH)

Question 11

How were Puma’s Australian aquisitions funded?

Answer 11

via a $300m bridge loan from ANZ and equity in the form of shareholder loans from Puma Energy

Question 12

When where PUMA’s australian aquisitions aquired? For what multiple?

Answer 12

Ausfuel (1 March 2013) 734M (9.1x) ; Neumann Petroleum (28 Feb 2013) 124M (9.4x) ; CCF (1 June 2013) 62.53M (4.8x)

Question 13

What market share does Puma Energy (Australia) Holdings Pty Ltd (PEAH) have?

Answer 13

PEAH is one of the largest independent fuel marketing companies in Australia with a 48% share of the independent market and ~4.1% share of the overall market. Major players and theirrespective market shares in Australia are Shell (25.8%); Caltex (35.1%); BP (22.1%) and Mobil (8.3%); total volume sold per annum is 54.2 million m3

Question 14

How is the fuel industry in Australia changing?

Answer 14

shift in supply from domestically refined fuels to imported gasoline and diesel,increasing the requirement for local import and storage terminals. This has also provided an opportunity for independents to increase their market share.

Question 15

What are PEAH’s midstream businesses?

Answer 15

Refining, storage and transportation of petroleum products.Within midstream, PEAH?s business is to own and operate infrastructure that supports trade flows, including bulk storage terminals, truck discharge racks and jetties.

Question 16

Which States does PUMA’s downstream business operated in?

Answer 16

PEAH operates in, market share for retail and commercial is estimated to be 33% and 28% in the NT (largest), 15% and 6% in WA (fourth largest) and 10% and 14% in QLD (fourth largest). The Company does not operate in the remaining states with the exception of a small presence in northern NSW

Question 17

What has happened to fuel stations in recent years?

Answer 17

Retail sites have gone through a rationalisation in recent years from a high of ~21,000 stations in 1966, to ~5,000 today which is widely accepted as a sustainable level.

Question 18

What has happened to Australia’s refining market recently?

Answer 18

The oil majors? focus on the upstream market has resulted in the closure of several Australian refineries (Australia will have five refineries by 2014) and BP being the only oil major with a large retail presence (the other majors being Shell which is affiliated with Coles and Caltex which is affiliated with Woolworths).

Question 19

What is the likely result of the decline in Austrlaia’s refining industry?

Answer 19

With demand in the Australian market forecast to continue to grow (albeit slowly) and refineries closing, reliance on imported fuel will increase, with 75% of total fuel requirements to be imported by 2017.

Question 20

Why did PEAH strategically choose to enter the NT, WA and QLD markets?

Answer 20

their growing nature, large demand from the mining sector (from existing operating mines) where they currently have very little market share and the significant logistics and supply challenges that PEAH believe they can improve and also is a deterrent to competition

Question 21

How will PEAH look to expand their presence in Australia?

Answer 21

PEAH are looking to expand their presence in Australia with construction of a further two import terminals in Perth and Newcastle (the terminals will be able to cater for larger ships and will hence improve the economics of delivering to Australia) and will also provide the Group with capacity to trade with the oil majors for space in other terminals and capture supply chain efficiencies.

Question 22

Why is PEAH building a fuel terminal in Mackay?

Answer 22

The terminal will be used to replace the supply of fuel as Australian refineries are progressively being closed down. The Mackay terminal has a total capital cost of $68m.

Question 23

Which Banks did PEAH mandated for the refinancing in 2013?

Answer 23

Westpac, ICBC, and NAB as MLAUB?sfor the take out of the bridge.

Question 24

How much Debt does PUMA have? How much does NAB provide?

Answer 24

$460M of which NAB provides ~$150M

Question 25

How does PEAH source Fuel?

Answer 25

PEAH will source ~50% of their fuel supply from Trafigura in the short term with the intention to increase this figure going forward, leading to potential concentration risk.PEAH are not obliged to purchase fuel from Trafigura and purchase ~50% from at least 3 other suppliers. Potential suppliers include the majors (BP, Shell, Caltex), offshore refineries (Korea are currently particularly aggressive on price) or other traders (eg. Morgan Stanley who previously supplied the Group).

Question 26

Describe an example of Competition/Demand risk for Puma Energy?

Answer 26

Given the highly competitive nature of the fuel industry, there is a risk that a supermarket will open service stations in a close proximity to PEAH?s existing sites, and putting downward pressure on gross margin and/or volume..

Question 27

How does PEAH mitigate competition/demand risk?

Answer 27

The majority of regions PEAH operates in are remote locations and are therefore not subjected to intense discounting from the supermarket majors or other competition. Due to this, PEAH?s retail and commercial fuel margins are three cents per litre and half a cent per litre higher than the national average respectively (Wood Mackenzie have confirmed).

Question 28

Does Puma Australia face significant commodity price risk? What about its parent?

Answer 28

Puma Energy (parent) manages commodity price risk. For the Australian operations, fuel price exposure is only for a short period of time, as they take ownership of the product ex gate (ie when itleaves the local storage terminal) and purchase off rolling 5 day average prices. This means that they only hold the inventory for a short period of time.

Question 29

What are the three subsectors of the Australian Fuel industry?

Answer 29

Refineries and marketing;Wholesale fuel supply; and,Retail fuel supply.PEAH primarily operates in the downstream activities of storage, wholesale and retail.

Question 30

How many refineries does Australia have?

Answer 30

Australia currently only has 6 operating refineries (under ownership of IOC?s). The Geelong (VIC) refinery is also proposed to close if no buyer can be found. The Geelong asset alone supplies 50% of Victoria?s and 30% of South Australia?s fuel demand.

Question 31

How much fuel does Australia currently import? What is projected by 2017?

Answer 31

Australia currently imports ~32% of domestic fuel consumption with the supply shift from imports to increase to ~75% by 2017 on the back of the refinery closures.

Question 32

How will the increase in imports impat the major international oil companies?

Answer 32

undermining the International Oil Companies? (?IOC") positions, which due to their refining supply they have historically been the most dominant players in the fuel market.

Question 33

How are the major International Oil Companies adapting to the changes in refining capacity?

Answer 33

some of the IOC?s are choosing to convert their refineries into import terminals where suitable. Despite this, the Independents (wholesalers, traders, storage operators) are increasing their share of imports from 5% in 2007/08 to 30% in 2011/12. We do not expect this trend to reverse as the IOC?s concentrate more on the upstream business.

Question 34

What is the trend for bulk terminal storage capacity in Australia?

Answer 34

The need for bulk terminal storage capacity is increasingly becoming of greater importance due to the loss of the domestic refinery supply. The Australian storage market capacity is currently 2.9m m3. This will need to increase to 4.3m m3 by 2020 to meet the requirements of the industry

Question 35

Who controls the majoriy of Australia's storage and import facilities?

Answer 35

The oil majors. The oil majors enter into buy-sell arrangements with each other which effectively allows them to swap storage at their terminal in return for storage at another terminal

Question 36

What is total fuel import turnover in Australia's terminals?

Answer 36

689ML. 399M is Independently owned and 291 is Refiner owned. Even the terminals not owned by the refiners are still largely used by the oil majors.

Question 37

Who is the largest independent fuel storage operator?

Answer 37

Vopak (has 43% of the market). PEAH currently holds 4%.

Question 38

How is the price of fuel set?

Answer 38

by global market forces and is primarily a factor of the cost base. In Australia the cost plus model is largely based on the Singapore price benchmarks, which on import to Australia are adjusted for freight (the Import Parity Price) and terminal costs, quality premiums, GST, excise and wholesale and retail margins. These costs are pass through in nature

Question 39

What are the major expense on top of the international benchmarks?

Answer 39

and excise premiums which accounts for ~35% of the total price paid at the pump by consumers.

Question 40

Who are the major players in the retail market?

Answer 40

1) REfiners (oil majors) 2 ) Specialised retails such as coles and woolworths and 3) Independents such as 7-Elevens acquisiton of the Mobil network

Question 41

Who is the largest independent retailer?

Answer 41

Puma is the largest independent retailer in the market with 4.1% overall market share and ~24% of the independent market