Corral Petroleum Holdings AB (publ) Business Update ... - Preem

have used and will seek to use derivatives to restore the volume that is exposed to price fluctuations. These strategies aredesigned to minimize, on a short-term basis, our exposure to the risk of fluctuations in crude oil prices and refined productmargins. This hedging activity is closely managed and subject to internally established risk standards. The results of thesehedging activities are recognized in our financial statements as adjustments to the cost of goods sold. To the extent permittedunder our financing arrangements, we participate to a small degree in “contango” trading in connection with our inventorymanagement. “Contango” occurs when the forward prices of crude oil or refined products exceed current spot market prices.As a result of our large storage capacity, we are able to take advantage of the price curve being in contango bysimultaneously entering into current spot market purchases and future sale agreements. By locking in our margin, we canrealize significant profits by utilizing our substantial storage facilities to store crude oil and refined products at our existingfacilities until the delivery date called for by the sale agreements.StorageWe own a strategically located network of storage depots along the Swedish coastline. Currently, our six storagedepots have a total storage capacity of 945,000 cubic meters (approximately 5.9 million barrels). Of the total storage capacityat our depots, approximately 30% is leased out, which generated SEK 25 million of rental income from third parties during2010. Pursuant to EU and Swedish legislations, we are required to keep certain levels of compulsory storage at our refineriesand depots. However, our current inventory exceeds these minimum requirements and, thus, also enables us to earn incomeby selling certificates for storage capacity to other oil companies for their EU-imposed compulsory storage obligations. Totalstorage capacity at our refineries is approximately 4,500,000 cubic meters, of which currently approximately 200,000 to400,000 cubic meters are leased out to third parties. In addition, we have potential additional storage capacity at Aspedalen,next to our Lysekil refinery, which could increase our storage capacity by 1,800,000 cubic meters (approximately 11 millionbarrels). However, this additional storage capacity would require substantial capital investments, which we do not expect tomake in the near future. In 2010, we generated SEK 95.2 million (€10.4 million) in the sale of storage certificates. As ofJune 30, 2011, we generated SEK 65.4 million (€7.1 million) in the sale of storage certificates.Marketing OperationsThe marketing segment resells refined products in Sweden. Our marketing segment consists of two divisions: abusiness-to-business division and a station and consumer division. The marketing segment resells refined products to largeand medium sized commercial customers and independent dealers, wholesale, primarily in Sweden. Our station andconsumer division also sells our gasoline and diesel through approximately 390 Preem-branded manned and unmannedservice stations, which are company-owned and dealer-operated, along with approximately 180 company-ownedSåifa-branded diesel truck stops. For the years ended December 31, 2010, 2009 and 2008, our marketing segment had salesrevenue of SEK 16,822 million (€1,839 million), SEK 13,702 million (€1,498 million) and SEK 16,140 million (€1,765million) and operating income of SEK 349 million (€38 million), operating income of SEK 213 million (€23 million) andoperating loss of SEK 6 million (€1 million), respectively. For the six months ended June 30, 2010 and 2011, our marketingsegment had sales revenue of SEK 8,222 million (€899 million) and SEK 10,072 million (€1,101 million) and operatingincome of SEK 184 million (€20 million) and SEK 203 million (€22 million), respectively. In 2008, approximately 17% (byvalue) of the products made by our supply and refining segment was sold to our marketing segment, and the other 83% (byvalue) was sold to third parties. In 2009, approximately 19% (by value) of the products made by our supply and refiningsegment was sold to our marketing segment, and the other 81% (by value) was sold to third parties. In 2010, approximately20% (by value) of the products made by our supply and refining segment was sold to our marketing segment, and the other80% (by value) was sold to third parties.Business-to-Business DivisionWe previously sold refined products to a large number of commercial customers of varying size and to privateconsumers. As part of the restructuring of our marketing segment, we no longer sell refined products directly to small-sizecommercial consumers or private consumers. Instead, we have in recent years supplied our products to a network ofindependent dealers, who in turn sell directly to these customers. The independent dealers are contractually required to useus as their primary supplier and are responsible for sales and delivery to the end-user. Creating this network of independentdealers to handle sales to smaller commercial customers and retail consumers and focusing our sales and marketing efforts onlarger commercial consumers has enabled us to reduce the size of our sales force and simplify our support functions, therebyreducing our costs. This shift in focus has enabled us to retain a very large portion of our sales volume while focusing ourefforts on a smaller part of our previous customer base.Within our business-to-business division, we have also outsourced route planning and transportation of products tothe independent dealers, which has helped reduce our costs. In 2008, we created a sales staff and support team to helpincrease our sales of diesel by increasing our market share in the commercial road traffic segment and the fleet segment,which include company cars and light transportation.44