2nd UPDATE:Neste Oil Sees Challenging 2010;Books 4Q Net Loss

Neste Oil Oyj (NTOIY) Thursday said refining markets are likely to remain challenging in 2010 and it expects margins to increase only gradually as it reported a below-forecast net loss for the fourth quarter of 2009.

The Finnish oil refining company said the slow demand recovery, new capacity due to come onstream in 2010 and high petroleum product inventories will weigh on a recovery in refining margins.

"It is likely that refinery utilization rates will be limited globally and that more capacity will be closed either temporarily or for good," Neste Oil said.

The company booked a fourth quarter net loss of EUR1 million, an improvement on the EUR290 million loss of the same period of 2008, but below a Dow Jones Newswires poll of six analysts which pointed to a profit of EUR31.03 million.

The result was impacted by lower sales as the refining margin slumped to $5.85 a barrel from $15.05 a barrel a year ago, and a series of negative non-recurring items including costs relating to job cuts announced in late 2009.

Chief Executive Matti Lievonen said: "The refining industry had a very difficult year in 2009, which was reflected clearly in our result. A virtually unprecedented drop in oil demand, coupled with increased new refining capacity, led to lower refining margins compared to recent years."

Lievonen said 2010 "appears to be another challenging year due to the slow pace of economic recovery."

Revenue was at EUR2.49 billion compared with EUR2.81 billion a year ago, and the loss per share for the period was EUR0.01 from a loss of EUR1.14 a share in the fourth quarter of 2008.

The company proposed a dividend of EUR0.25 a share for 2009.

Analyst Henri Parkkinen of Pohjola Bank said Neste Oil's fourth quarter comparable operating loss of EUR29 million was weaker than expected due to the company's difficulties in its refining unit. "The dividend was also below our estimates and the outlook for 2010 was not very promising," he added.

Neste said it has built up a stockpile of 570,000 tons of gasoline and middle distillates to replace lost output volumes during a planned, second quarter turnaround at the Porvoo refinery in Finland. The sale of the stored products will have a positive impact on operational cash flow, it said.

But the storage build-up depressed fourth quarter cash flow from operations by around EUR250 million, leading to net cash from operations of negative EUR225 million. That compares to positive net cash of EUR486 million in the fourth quarter of 2008.

In its outlook, Neste Oil said diesel and middle distillate margins have strengthened somewhat during January 2010 due to cold weather and normal seasonal demand. But it ceded that margins are not expected to increase significantly before current high onshore and floating inventories levels have been drawn down. "This is expected to take at least six months, depending on how demand develops," the company forecast.

The company's Renewable Fuels unit is expected to report negative results until sales volumes increase materially in the last months of 2010 when a new plant in Singapore is due online.

Full year 2010 fixed costs are expected to be on a similar level to 2010 and cash investment is anticipated at around EUR920 million of which strategic investments account for EUR580 million, maintenance investments EUR310 million and productivity investments EUR30 million.

Neste Oil closed at EUR11.65 Wednesday, off the previous 12-month peak of EUR13.22 reached in October following news of layoffs. The shares had made a steady recovery from July up to that point, but fell again after the October high as depressed refining markets continued to weigh on a more sustained recovery.

Company Web site: www.nesteoil.com

-By Elizabeth Adams, Dow Jones Newswires; +44 (0) 20 7842 9386; elizabeth.adams@dowjones.com

Neste OYJ (PK) (USOTC:NTOIY)
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