Petroplus crisis deepens as all credit lines frozen

The Petroplus refinery is pictured in Cressier near Neuchatel May 12, 2011.

ZURICH/LONDON (Reuters) - The plight of Swiss oil refiner Petroplus PPHN.S worsened on Thursday as lenders extended the freeze on its borrowing to all credit lines, on top of $1 billion choked off last week.

The company's shares tumbled some 23 percent following the news as doubts grew about its ability to keep operating.

The company said negotiations were ongoing and it would hold another meeting with banks in coming days to try to restore the funds it needs to keep its refineries running.

It said its low-performing Petit Couronne plant in France, which employs 550 people, was in the process of being safely shut down, but industrial action at the site was restricting the movement of products.

Its Antwerp refinery in Belgium should start a safe shutdown in coming days, while stocks at its Cressier plant in Switzerland are expected to last until just after mid-month.

The plants at Coryton in the United Kingdom and Ingolstadt in Germany remain operational, with a throughput of 100,000 and 60,000 bpd respectively.

"It's rather severe. According to my calculations, given the normal throughput they have, they can only keep operating until mid-January," said Andreas Escher, analyst at Vontobel.

According to the company's third quarter earnings report, Petroplus had cash and short-term deposits of $191 million as of September 30.

Petroplus said it is talking to an unnamed oil company to secure the new credit lines and crude oil supplies it needs to stave off bankruptcy.

"Talks with banks are ongoing and we hope that a deal will be reached as soon as possible," chief executive Jean-Paul Vettier told reporters on Thursday on his way out of a meeting with French Prime Minister Francois Fillon in Paris.

"We will do everything we can to avoid bankruptcy... An alternative solution lies in an oil company that could give us oil but also credit lines. Negotiations are underway," Vettier said, without naming the company.

Both BP (BP.L) and Total (TOTF.PA) declined to comment.

The European refining industry is struggling as a result of overcapacity and the prospect of a Petroplus demise has already boosted margins, suggesting its peers have little to gain from supporting it.

Analysts say buyers of Petroplus products would have little problem finding alternative suppliers.

Shell (RDSa.L) declined to comment on whether it was the unnamed oil group but a spokesman added: "Petroplus is one of our suppliers in France, in particular for Retail, Bitumen, Lubricants and LPG/BUTAGAZ. We are closely following the situation and will take action, where necessary, to ensure the supply of our customers."

Bankers say Asian oil and gas groups are one of the few potential buyers of European refining assets, as the companies believe they need an international footprint to help their global trading operations.

Essar Energy said such an ambition was behind its purchase of Shell's Stanlow refinery in the UK last year.

Petroplus has been locked in talks with 13 banks after lenders froze a $1 billion credit facility the group relied on to buy crude oil.

Petroplus has some 4.4 percent of total European refining capacity, with plants at Coryton, Antwerp Ingolstadt in Germany, Cressier and Petit Couronne.

POLITICAL PRESSURE

The French government has offered support to the company. French Energy Minister Eric Besson said on Thursday state aid could take various forms and would not necessarily be financial.

The French government, which experienced its worst ever refining sector strike last year, is keen to see a successful outcome as it heads into presidential and parliamentary elections in the spring.

Data last week showing France's jobless rate at a 12-year high will likely make the government more anxious to preserve jobs at Petit Couronne.

A company insider told Reuters that Petroplus has appointed an external auditor to value the business, come up with a cost-cutting program and identify its most profitable assets for potential disposal.

Petroplus and its lenders and auditors have been locked in meetings for days and a plan could emerge early next week after a key session this Friday, the insider said.

"They are quite pessimistic about the company's future," he added.

The alternatives could include selling the poorest performing refineries in France, Belgium and Switzerland to focus on the most efficient ones in the UK and Germany.

The weaker refineries could appeal to oil storage companies such as France's Rubis (RUBF.PA) or to oil traders like Socar, Vitol VITOLV.UL, Trafigura TRAFGF.UL or Mercuria, bankers said.

Other oil companies have been converting refineries they could not sell into terminals or storage units, which can support their logistics and oil trading businesses while avoiding a costly clean-up that a permanent closure would entail.

REAL CAUSE STILL UNCLEAR

The detailed circumstances that prompted the change of heart on Petroplus's credit facility have yet to unfold.

The company insider said that while French banks including BNP, SocGen and Natixis were eager to continue supporting the company, others were less comfortable about further stretching their balance sheets with expensive dollar funding.

The increased cost of dollar funding amid pressure from regulators on banks to boost their capital levels was seen by both bankers and analysts as the most likely driver of the about-face.

Still, the abrupt decision and its timing came as a shock both internally and externally.

"I struggle to understand why banks did this. It's hardly the time when a company has a reasonable chance to find an alternative liquidity provider. Also, the ECB's giant liquidity facility was supposed to help decelerate deleveraging in European banking." said Deutsche Bank analyst Gergely Varkonyi.

(Additional reporting by Axelle du Crest and Marie Maitre in Paris and Tom Bergin in London; Writing by Chris Wickham; Editing by Christian Plumb and David Cowell)