Edoardo Raffinerie Garrone

ERG S.p.A.

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Type	Public (BIT: ERG)
Founded	June 2, 1938
Headquarters	Genoa, Italy
Key people	Edoardo Garrone (Chairman) Alessandro Garrone (CEO) Riccardo Garrone (Honorary Chairman)
Website	www.ERG.it

ERG (Edoardo Raffinerie Garrone) is an Italian multi-energy company, founded in 1938 and based and headquartered in Genoa, Italy. ERG has been listed on the Milan stock exchange since 1997.

History

Origins, development, integration

The history of the ERG Group started on 2 June 1938 when the Podestà of Genoa granted the license for “trading products derived from petroleum and tar” to Edoardo Garrone, grandfather of the current Chairman Edoardo. Thus was founded Edoardo Garrone’s individual concern: for the company, which became a refinery in the early post-war years, a die was chosen as a symbol (from the Italian word "Dado", nickname for Edoardo, which also means “die”); its faces bear a three-letter acronym. The initials of Edoardo Garrone Refinery written on the faces of the die read... ERG. After the war, in a country that had to be rebuilt from the ground up, the great demand for energy, exacerbated by the utterly devastated condition of electrical plants, found in petroleum the most suitable energy source to meet national needs thanks to its low price, availability and procurement flexibility. The refining activity, thanks to the favourable economic environment and the excellent geographic position of the plants, thus became strategic for ERG. After consolidating its standing in Italy, in 1956 the company signed the first major international agreement with British Petroleum which, subsequently and for several years, held a significant minority stake in ERG’s share capital. In 1963, the annual processing capacity of the refinery had already reached 6.5 million tonnes.

In 1971, ERG joined other private groups as a shareholder of ISAB, founded to build a large refinery in Sicily and, in 1985, in view of the planned shut-down of the San Quirico Refinery, it took control of ISAB with a stake that grew over the years and reached 100% in 1997. After developing its activities mostly in the refining sector, the Company started to grow nationwide also in the commercial distribution sector, where it was already active with its own network of service stations in North-western Italy. This strategy was implemented in two stages: in a first stage, in 1984, through the acquisition of the entire roadside network – 780 facilities – of ELF in Italy and, in a second stage, in 1986, with the acquisition of Chevron Oil Italiana. With the latter transaction, ERG took over control of 1,700 additional distribution stations: this was the start of the ERG Network, recognisable, on all roads in Italy, by its trademark three panthers. More recently, in late 1993, an agreement between ERG and Edison Mission Energy, one of the world’s foremost energy producers, led to the inception of ISAB Energy, whose mission was the construction of the first Italian heavy oil gasification plant for the generation of clean electric power. The innovative industrial project received about 1,900 billion lire of Project Financing, which was unprecedented in Italy.

From listing to 2000

From 1995 onwards, the Garrone family gave the Group's Management full responsibility for running the Group. A wide-ranging transformation process was thus started on a company that for nearly 60 years had been a family-owned and run business. Through a rationalisation of the corporate structure and aggressive re-focusing on the core business of energy, ERG prepared its listing on the Stock Market to create the conditions for more efficient funding of the new development phase that awaited it. The global offer consisted of a public offer for subscription and sale of 70.25 million shares in Italy and a private placement of 30.75 million shares reserved for domestic and foreign institutional investors. In October 1997, ERG stock was listed on the Electronic System of the Italian Stock Markets. On 18 April 2000, the ISAB Energy plant was commissioned: it is the first Italian plant and the third in the world for the gasification of petroleum residues and the generation of electric power. Its gross capacity is 512 MW and its estimated production is between 3 and 4 billion kWh per year, covering over 1.5% of the entire domestic demand for electric power. ERG a petroleum company, thus became a company active in the energy industry in the broadest sense.

The present

In October 2002, ERG Raffinerie Mediterranee was incorporated (72% ERG, 28% ENI), to manage one of the largest and most efficient refining sites in Europe, obtained through the merger and integration of ERG's ISAB Refinery and the former AGIP refinery, both in Priolo. The two refineries were integrated through the construction of a system of pipelines and other works to upgrade and improve production efficiency and environmental compatibility to allow the new ‘survivor’ to be positioned at a very high competitive level in the international scenario. In late 2002, Alessandro Garrone was appointed Chief Executive Officer of ERG. In 2003, Riccardo Garrone left ERG’s chairmanship after forty years. He was replaced by his first-born son Edoardo.

On 23 December 2004, the Edoardo Garrone Foundation was setup as a natural continuation of the involvement of the Garrone and Mondini families, as well as of the companies of the ERG Group, in the social and cultural arena. The main activities of the Foundation involve the organisation of seminars and conferences and the preparation and publication of studies and research. The goal is to give a significant contribution to making culture, art and science readily available and understandable, as well as to cooperate actively in ethical, fair projects.

ERG’s multi-energy strategy and its commitment to alternative energies developed further in 2005 with Ionio Gas S.r.l., incorporated with equal stakes by ERG Power & Gas S.p.A. and Shell Energy Italia S.r.l., which will design, build, run and maintain a terminal for the reception and regasification of Liquefied Natural Gas at the ISAB North Plant Refinery in Priolo.

In 2005, ERG was included in the MIDEX Index within Borsa Italiana’s Blue Chip segment. The move from the STAR to the Blue Chip segment took place following the significant increase in stock market capitalisation of ERG’s shares.

In 2006, it acquired 51.33% of the share capital of Enertad S.p.A., a listed company active in the generation of electric power from renewable sources; in 2007, this stake rose to 68.38%. The acquisition of the stake in Enertad was a decisive step in the strategies pursued by the Group to expand and consolidate its position in the renewable energies sector. In May 2008 a partial split of ERG Power & Gas enabled it to integrate into Enertad the Group’s activity in the renewable energies sector; as a result of the transaction, ERG's stake in Enertad reached 77.4% of the share capital. Simultaneously with the acquisition of the ERG Power & Gas assets in the renewable energies sector, Enertad changed its name to ERG Renew, thus marking the completion of an integration and reorganisation process meant to turn ERG Renew into the ERG Group company that is dedicated to the development of activities in the field of energy generation from renewable sources.

2008 was the year of the agreement with LUKOIL, one of the most important agreements in the Group's history; through the incorporation of the "Newco” ISAB Srl (51% Raffinerie Mediterranee and 49% LUKOIL), it led to a solid partnership in coastal refining operations. The agreement, announced on 24 June 2008 and closed on 1 December 2008, entailed transferring to the Newco the business unit of ERG Raffinerie Mediterranee that includes all the assets of the ISAB Refinery in Priolo. This major joint venture confirms the Group’s strategy, distinguished, in the past as in the present, by agreements with top tier international partners, which have always provided significant opportunities for development and growth. Entirely consistently with a multi-energy strategy aimed at optimising invested capital among the different sectors, the transaction assured financial resources and enabled to strengthen the group’s financial structure, providing the necessary flexibility to be able to exploit any new development opportunities in the various areas of operation, in Italy and abroad. The partnership with LUKOIL, a leading integrated company in the petroleum and gas sector worldwide, enhanced the managerial skills in the plants with significant benefits for the competitiveness and efficiency of the refinery and it also provide potential benefits in terms of synergies and access to new markets.

In 2009 ERG, thanks to an agreement with Vodafone Italia, entered the market of virtual mobile telephony as an operator: thus, ERG Mobile was founded and ERG Petroli became the first oil company with a dedicated, customised SIM, marketed through the ERG fuel distribution Network.

In November 2009, ERG Power S.r.l. was established with share capital fully underwritten and paid in by ERG Nuove Centrali S.p.A.: the incorporated company was assigned the new co-generation electric power plant (480 MW) located inside the North area of the Priolo (SR) site; it has been operational since April 2010.

Consistently with the policy of forging alliances with top tier international operators, which has always distinguished the Group’s history, in early 2010 TotalErg was launched: it is a joint venture resulting from the merger of ERG Petroli and Total Italia. TotalErg (51% ERG – 49% Total), officially operating since 1 October 2010, is the third largest operator in Italy in the distribution of petroleum products, with about 12% market share and over 3,300 service stations: hence, the partnership with Total enabled both partners to achieve a significantly stronger position on the market and to share their assets and expertise. Thanks to the high potential for managerial and operating synergies, TotalErg, in addition to expanding the offering of services and products to its customers, will enable to attain significant economic benefits, creating value for its shareholders.

In 2010, the ERG Group also made sizable investments in the Renewable Energies sector: in June, through the agreement with IVPC S.a.s. (closed in July) for the acquisition of the entire share capital of IVPC Power 5 S.r.l., owner of two wind farms with an installed power of 102 MW. Thanks to the acquisition, ERG Renew increased installed power from 208 MW to 310 MW (of which 246 MW in Italy).

At the beginning of 2011, ERG exercised the put option on 11% of ISAB S.r.l reducing its share in ISAB S.r.l. from 51% to 40%. The transaction enables the Group to continue to maintain a significant industrial role in Coastal Refining, thanks to a governance that remained unchanged, whilst strengthening its financial structure, consistently with our multi-energy strategy.

From petroleum operator to multi-energy Group, ERG is continuing to blaze its trail in the energy business and, even in the face of challenging scenarios, its history attests its enterprising vision able to anticipate changes and exploit new opportunities, always keeping as its primary objective the creation of sustainable value for its stakeholders.

Group Profile

The ERG Group, including its subsidiaries and joint ventures with leading international players, operates in the following business segments:

Refining & Marketing

The Group is active in the segment of coastal refining through the joint venture with LUKOIL which controls the ISAB refinery in Priolo, one of the main sites in the Mediterranean both in terms of capacity (320 thousand barrels/days) and complexity (Nelson index 9.3) and in integrated downstream, from 1 October 2010 through TotalErg, the joint venture with TOTAL, with a network of about 3,300 sales outlets (about 12% market share) and fuel sales of 4.2 million m3/year, and through ERG Oil Sicilia (EOS), a company which, as a result of a partial demerger, received the business unit comprising the assets of ERG Petroli S.p.A. in Sicily. TotalErg also operates in the refining segment (the Rome Refinery, a wholly owned subsidiary,the Sarpom Refinery in Trecate, with a 26% shareholding).

Power & Gas

The Group is active in the production and marketing of electric energy, steam and gas. ERG’s main equity investments in the segment are:

• ISAB Energy S.r.l.: generation of electricity with a power plant (528 MW), fuelled by a gas obtained from a complex process of gasification of asphalt originating from the ISAB Refinery in Priolo (Sicily);
• ERG Power S.r.l.: the company owns the North Plant of the Priolo site (480 MW), comprising the combined cycle plant fuelled with natural gas and existing counter-pressure plants.

Projects in the authorization phase:

• Ionio Gas S.r.l.: a joint venture with Shell Energy Italia for the development of a liquid natural gas regasification plant at Priolo, Sicily.
• ERG Rivara Storage: (15% ERG, 85% Independent Gas Management - Independent Resources Group): a company for the construction and operation of an underground natural gas storage site in Rivara, San Felice sul Panaro – Modena.

Renewable energy sources

Through its subsidiary ERG Renew, the Group operates in the renewable energy source sector with 310 MW installed in the wind power generation sector, of which 157.8 in Apulia, 40 in Molise 37.5 in Sicily, 9.1 in Lazio, 1.6 in Liguria and 64.4 in France. Two wind farms belonging to ERG Eolica Adriatica S.r.l. are also included for a total of 101.8 MW (formerly IVPC Power 5 S.r.l.). The acquisition was finalised in July 2010. ERG Renew is currently completing its construction of two wind farms, Fossa del Lupo (90MW) and Ginestra (40MW) that will become operational in 2011.

Some numbers (Annual Report for the year ended as 31 December 2010)

Retail market share - Italy (TotalErg results)	12%
Service Stations (TotalErg results)	3,322
Employees at year end	714
Maximum market capitalisation	1,628 (million Euro)
Electricity production	6,688 (million kWh)
Crude oil processing in the refineries	194 (thousand barrels/day)
Net group income at replacement cost	(20) (million Euro)
Investments	201 (million Euro)
Group debt at 2010 year-end	723 (million Euro)
EBITDA at adjusted replacement cost	305 (million Euro)
Consolidated revenues	7,899 (million Euro)
Net invested capital	2,614 (million Euro)

EBITDA at adjusted replacement cost: The results at replacement cost do not include gain (losses) on inventory and non characteristic items. EBITDA at adjusted replacement cost takes into account, for the portion pertaining to ERG (51%), the added contribution from the results of ISAB S.r.l. (company created in joint venture with LUKOIL) and TotalErg S.p.A. (company created in joint venture with TOTAL).

SOURCE: www.erg.it, Annual Report (interactive version)

External links

• ERG Official Website
• Interactive version of 2010 ERG Annual Report
• Interactive version of 2010 Sustainability Report
• ERG Renew Official Website
• ERG Divisione Power & Gas Official Website
• TotalErg Official Website

de:ERG (Unternehmen)