Ashdod Refinery Ltd.

Ashdod Refinery Ltd. imports crude oil and intermediate feedstocks, refines them into petroleum distillates, and markets them in the domestic market and for export. In parallel it generates electricity at two cogeneration power plants and operates a road-tanker loading terminal and storage services. This is one of only two refineries in Israel — the other is Bazan in Haifa.

The refinery began operating in 1973 as part of Oil Refineries Ltd. Under the privatisation programme it was separated from Bazan in 2006 and acquired by Paz Oil Company. On 28 August 2023 the spin-off from Paz was completed: the company's shares were distributed as a dividend in kind to Paz shareholders, and on 30 August 2023 they were listed on the Tel Aviv Stock Exchange. The company trades with no controlling shareholder, and since the spin-off it reports in US dollars.

Principal units: a crude distillation unit with capacity of 107,000 barrels per day (up to 118,000 in a specific operating mode), a vacuum distillation unit of 46,000, a fluid catalytic cracker of 36,000, two diesel hydrodesulphurisation units with combined capacity of 37,000, plus units for naphtha, kerosene, gasoline, MTBE and alkylation. A comprehensive periodic turnaround is carried out every five to six years; the last was in June–July 2022. As of 31 December 2025 the company employed 443 people, plus roughly 200 contractors in a non-turnaround year.

The ownership structure contains one material component: Shapir Energy Ashdod Ltd., part of the Shapir Engineering and Industry group, acquired 1,249,382 shares (10% of the capital) at the spin-off for approximately ILS 156 million, and received three options to acquire additional shares. Paz retained 612,198 shares (4.9%) that were not included in the distribution in kind. Section 6 below sets out the option structure and its economic mechanics.

Revenue in H1 2026 totalled $1,782 million versus $1,406 million in the comparable half — an increase of 26.7%. According to the report, the increase derives "mainly from an approximately 27% rise in product prices". Over the same period, production output fell from 1,993 to 1,847 thousand tonnes, a decline of 7.3%.

Reported versus adjusted — and what the adjusted measure contains

In the board of directors' report the company publishes a bridge from reported operating profit to adjusted operating profit consisting of four adjustment lines: timing differences on inventory hedges, adjustment of inventory value to net realisable value, effects of economically unhedged inventory, and foreign-exchange hedge adjustments. The gap between the two sets of figures in Q2 2026 was the widest recorded since the spin-off:

A factual point bearing on how the adjusted measure should be read: in Q4 2025 the company recorded, per the board of directors' report, $40 million of insurance income within "other income, net" following the non-standard feedstock incident, and $47 million of indemnity receivable from the supplier credited to cost of sales. The four adjustment lines the company publishes do not include a line neutralising insurance income, and the bridge begins from reported operating profit, which includes them. This reading is Bakshi Finance's, not the company's. For reference, adjusted EBITDA in Q4 2025 was $120 million out of $166 million for the full year.

The company's total refining margin in H1 2026 was $15.0 per barrel versus $9.9 in the comparable half, and for full-year 2025 it was $11.9 versus $8.9 in 2024. In Q2 2026 the total margin was $15.7, of which $13.3 was refining margin and $2.4 came from electricity sales and loading. According to the company, the Q2 refining margin includes a loss of approximately $4.6 per barrel on product-margin hedging transactions.

Total assets grew by $339 million (+24%) in a single half, from $1,399 million to $1,738 million. Almost all of the growth is in current assets, and almost all of it is funded by current liabilities. Per the report, the causes are "mainly growth in customer and inventory balances due to the rise in product prices" on one side, and "growth in the supplier balance due to the rise in the barrel price" on the other.

Debt, rating and financial covenants

As of 30 June 2026 the company has no net financial debt as defined in its financing agreements: cash of $333 million against bonds and loans of $275 million. Series 2 bonds stand at ILS 560 million par at 7.5% interest, and Series 3 at ILS 168.9 million at 6.06%. Both series trade above their carrying value.

On 18 November 2025 Midroog downgraded both series from A3.il to Baa1.il with a stable outlook. Under the trust deeds, the downgrade automatically raised the coupon on both series by 0.25%. On 16 August 2026 — that is, after the half-year results were published — Midroog re-affirmed the Baa1.il rating with a stable outlook, and assigned the same rating to a new series the company is considering issuing. A shelf prospectus was published on 7 August 2026.

The financial covenants are met with wide headroom: adjusted equity of $501 million against a $200 million requirement; equity to total assets of 29% against a 17.5% requirement; and a net financial debt to adjusted EBITDA ratio of 0.0 against a ceiling of 5.5 in the bonds and 4.8 in the bank agreements. Because the ratio is below 2.5, the company is exempt from the minimum adjusted EBITDA requirement.

Three additional funding sources do not appear as financial debt: supplier credit averaging $537 million per month during the half; trade receivables derecognised under IFRS 9 of $95 million (ILS 284 million), against $124 million at end-2025; and documentary credit of $121 million, against $108 million at end-2025.

Cash flow

Cash flow from operating activities in the half totalled $121 million versus $41 million in the comparable half. The working-capital breakdown in the report: inventory −$117 million, receivables −$131 million, other receivables −$21 million, derivatives −$5 million, suppliers +$289 million, other payables +$9 million. The operating base before working-capital movements contributed $96 million. Capital expenditure: $25 million.

At the quarterly level, operating cash flow was −$62 million in Q1 and +$183 million in Q2 — a $245 million swing, against a $16 million swing in adjusted EBITDA between the same quarters.

The company has a single activity segment — refining — comprising import and export of crude oil and its products, refining and sale in the domestic market and for export, electricity generation and sale, and storage and loading services. The relevant breakdowns are by market and by product.

Customer concentration

Note 7 to the financial statements presents two principal customers, without identifying them:

Revenue from Customer A fell by $198 million between the halves, in a period in which product prices rose by roughly 27% per the company and total company revenue rose 26.7%. The report does not explain the change. Customer identities are not disclosed.

Israel has only two refineries: Ashdod, owned by the company, and Bazan in Haifa. According to the report, the 2006 separation and privatisation created competition between the two, increased production capacity and reduced import volumes; surplus output is directed to export.

Importing distillates carries additional costs — discharge, transport from port to loading terminals, storage and holding higher inventory levels, and compliance with import regulations. It also depends on weather, the absence of strikes at the fuel ports, and the condition of the marine connectors. Nonetheless, the company notes that distillate imports into Israel take place on a regular basis, mainly LPG and gasoline, which are in short supply.

The company is designated as holding "vital state interests" under the Government Companies Order, and therefore holding above a specified threshold of its share capital requires a permit. The Fuel Administration at the Ministry of Energy is empowered, under the Commodities and Services Control Order, to impose restrictions and even an outright ban on the export of oil and distillates. During the reporting period the company received instructions prohibiting it from exporting; as at the report publication date no restrictions under the order applied to it.

The trends the company identifies in the sector for the coming years, per the annual report: oil and product prices and the geopolitical factors affecting them; continued moderate growth in the gasoline market, as engine efficiency and the shift to alternative propulsion are offset by growth in the vehicle fleet; tightening supervision of air and soil emissions and odour nuisances; and the construction of advanced mega-refineries in India, the Far East, Africa and the Middle East.

The benchmark the company itself selected is the IEA/KBC MED FCC reference margin — the margin of a model gasoline-oriented refinery with a similar but not identical configuration, exposed to Mediterranean price structures. Under the new methodology, the company's refining margin exceeded the reference margin in four of the last six quarters. The two exceptions are Q3 2025 (7.1 versus 8.8) and Q2 2026 (13.3 versus 13.8).

Items under monitoring — as they appear in the report

• Refining unit utilisation. 84% in Q4 2025, 74% in Q1 2026, 71% in Q2. The report attributes the second quarter to "a number of isolated faults in various units", without detail. One of the two sulphur recovery units is unavailable as at the report date.
• The non-standard feedstock incident. As of 30 June 2026 a write-down provision of $26 million was recorded on non-standard inventory. Total advances received from insurers: $58 million, of which $40 million was recognised as income in 2025 and $18 million was agreed in June 2026 and has not yet been recognised. The $47 million supplier indemnity was recorded in 2025 and remains unchanged. The company states it is unable to estimate the final indemnity amount.
• An additional, separate fault. After the reporting date the company split its claim against insurers in respect of a fault in one of the units "whose origin turned out not to be the non-standard feedstock".
• The 2027 periodic turnaround. Brought forward to H2 2027 as a result of the incident. According to the company's management estimate, the cost will be $115–130 million, including handling part of the incident damage. During the turnaround, supply to customers will rely on imports and pre-built inventory.
• Municipal rates assessment. On 16 June 2026 an assessment was served by the Ashdod Municipality reflecting a 110% increase for 2026, plus retroactive charges for the years 2019–2025. The total is ILS 266.3 million including linkage and interest. The company disputes the assessment and intends to commence proceedings. No provision has been recorded, and the company states that "at this preliminary stage the outcome of the proceedings cannot be assessed".
• Open hedging positions. A loss of $61 million was recognised during the reporting period on forward transactions hedging product margins, and $28 million remains open for the July–December 2026 period. In addition, the company holds unhedged inventory of 165 thousand tonnes.
• The laboratory accident. On 11 February 2026 a workplace accident occurred in the company's laboratory that resulted in the deaths of two employees. The cause has not been established and is under police investigation, in the course of which employees and senior managers have been questioned on suspicion of negligent homicide.
• Legal proceedings. On 15 June 2026 an application for disclosure and inspection of documents under section 198A of the Companies Law was filed against the company and against Paz, alleging that environmental violations over the years indicate a prima facie breach of officers' oversight duties. In addition: a third-party notice from the Israel Electric Corporation (10 August 2026) and a Clean Air Law proceeding — in both of which the company assesses the likelihood of being charged as below 50%.
• Environmental regulation. On 11 June 2026 the Israeli government approved the national plan for reducing air pollution and odours in the northern Ashdod industrial zone. The company states that it is "studying the implications of the plan, whose effects on the company's operations have not yet been fully clarified". Not quantified.
• Labour relations. A labour dispute notice was filed by the employee representatives on 27 January 2026. The collective agreement covering approximately 375 of the 443 employees is in force until 31 December 2026.
• Geopolitical and logistical exposure. The Turkish embargo on crude imports through Turkish ports intensified, and freight costs rose materially. During the military operation, the supply of natural gas and condensate to the refinery was halted from time to time on the instruction of the Ministry of Energy, and some of the company's customers reduced purchases in April–May 2026.
• Market structure. During the operation, backwardation deepened to approximately $9 per barrel — a condition in which the spot price exceeds the forward price, and which generates a loss on inventory hedging.