Oil Trader Mercuria's Profit Rose Slightly as Volatility Jumped

  • Results tempered by provisions of $400 million over two years
  • CEO Dunand says provisions taken for Qingdao, other assets

Mercuria Energy Group Ltd.’s profit rose marginally last year as strong results from oil trading were offset by provisions taken for potential losses from metal that went missing in China and lower asset valuations, Chief Executive Officer Marco Dunand said.

Buoyed by oil price volatility and profits from storing crude, Geneva-based Mercuria’s 2015 net income was “slightly higher” than the $273 million the company earned in 2014, Dunand said in an interview at the FT Global Commodities Summit in Lausanne. The trader has taken more than $400 million in provisions over the past two years, including capital set aside to cover potential losses from the missing metal, Dunand said.

“We have taken a very conservative view,” he said.

Mercuria’s profit was $286 million in 2015, according to a document seen by Bloomberg. The company has yet to release its results.

Oil traders from Trafigura to Gunvor reported record profits in 2015 as they benefited from turbulence on global markets and a price structure called contango, which allowed them to earn money from storing crude in tanks. Mercuria has also invested in and formed joint-ventures with oil production companies from Nigeria to the U.S., whose value declined as prices plunged last year.

Reduced Valuations

The trading house owns a 4.3 percent stake in Seplat Petroleum Development Co. Plc, a Lagos-based oil company worth about $900 million, according to data compiled by Bloomberg. The producer’s share price has fallen 46 percent since its flotation in 2014. Mercuria also has joint-ventures and investments with oil companies in Texas, North Dakota, Argentina, Romania, Equatorial Guinea and Romania, according to its website. 

A potential metals fraud at the port of Qingdao prompted Mercuria to take provisions of more than $100 million in its 2014 results, a person familiar with the company’s accounts said last year. Further provisions were taken in 2015 to reflect potential losses from incident, Dunand said.

The matter is being investigated by police in China, but it is still unknown how much metal is missing. Liability is also in dispute and Mercuria has battled Citigroup Inc. in court to determine who is responsible for possible losses stemming from the alleged fraud, in which the same metal may have been pledged to multiple buyers.

China’s largest chemical company, China National Chemical Corp., agreed to purchase a 12 percent stake in Mercuria in January. Dunand said the deal was still too fresh for him to comment on what opportunities it may create for the trading house.

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