Ashdod Refinery: What Earnings Really Look Like After The Defective Feedstock Event
The fourth quarter proved the refinery recovered operationally, but the 2025 earnings picture is still not fully closed: the company recognized a $47 million supplier indemnity asset, $40 million of insurance income, and an $85 million defective-inventory charge, while part of the final outcome still rolls into 2026 through realized sale prices and future recoveries.
What This Follow-Up Is Isolating
The main article already established that Ashdod Refinery's fourth-quarter operating recovery was real, and that 2026 will be judged through customers, exports, and power. This follow-up isolates a narrower question: how much of the defective feedstock event is already economically closed inside 2025 earnings, and how much is still sitting in estimates, collections, and realized prices that will only be resolved after year-end.
It is tempting to look at three numbers and do a quick netting exercise: a $47 million supplier indemnity, $40 million of insurance compensation, and an $85 million provision on defective inventory. That arithmetic almost washes out. That is the wrong read. These numbers sit on different accounting lines, on different timing bases, and with different levels of closure. At the same time, year-end inventory closed at only $230 million after a total write-down of about $99 million, and the auditors treated inventory valuation as a key audit matter.
Put differently, 2025 contains both a genuine operating recovery and an incident layer that is still not fully settled. The non-standard products were sold during the second half of 2025, part of the defective feedstock inventory was sold only in the first quarter of 2026, and the company explicitly says it still cannot estimate the future amount of indemnity it may receive from the supplier or insurers.
| Item | Where it sits in 2025 | Amount | What is still open |
|---|---|---|---|
| Supplier indemnity | Reduction in cost of sales | $47 million | The company still cannot estimate the future amount of supplier recovery |
| Insurance compensation | Other income | $40 million | Only $11 million was received in 2025, $4 million after the balance-sheet date, and $25 million had been approved but not yet received at report approval |
| Defective inventory write-down | Impairment based on an indication of realizable value | $85 million | Actual sale prices can still change the effect in later periods |
| Total year-end inventory write-down | Inventory carrying value | $99 million | Auditors treated the valuation judgment as a key audit matter |
That table matters because the event does not close through one neat net number. Part of it runs through cost of sales, part through other income, and part remains embedded in inventory valuation itself. Anyone trying to reduce the whole thing to one net figure is missing the quality-of-earnings question.
Adjusted EBITDA Does Not Close The Event
The headline number that drew the most attention in 2025 was adjusted EBITDA of $166 million, versus reported EBITDA of $142 million. That number is useful, but only if you are precise about what it does and does not do.
That bridge says something very specific: adjusted EBITDA strips out hedge timing noise, unhedged inventory effects, and inventory adjustments to net realizable value. That is a reasonable way to get a cleaner read on refining conditions. But it does not erase the defective feedstock event as if it never happened. There is no explicit line in that bridge that removes the $40 million of insurance income, and the investor presentation's footnote frames the adjustment around the defective-inventory write-down and the supplier indemnity asset. The implication is important: $166 million is an adjusted number, but not a fully incident-free number.
That matters because otherwise the market can too easily turn adjusted EBITDA into a run-rate number. In reality, it still sits after part of the event compensation had already been recognized in 2025, while the realized sale prices of the defective inventory and the final supplier and insurance recoveries were not yet fully closed.
The financing language makes the same point from a different angle. In the covenant definition, adjusted EBITDA for the banks also neutralizes any loss from the sale of defective feedstock inventory and any related insurance proceeds, while the supplier indemnity asset was also neutralized in practice. That matters less because of covenant pressure and more because of what it says about measurement quality: even for lenders, the sale of defective inventory and the associated compensation are still treated as an open tail rather than a fully closed 2025 item.
Compensation Was Recognized Faster Than Cash Arrived
The insurance line sharpens the gap between accounting relief and economic closure. The company recognized $40 million of insurance income in 2025, but by year-end had actually collected only $11 million. Another $4 million came in after the balance-sheet date, and $25 million had been approved but not yet received by the time the report was approved.
That does not mean the accounting is problematic. It does mean that the earnings relief arrived earlier than the full cash settlement. At the same time, the company still cannot estimate the future amount of recovery it may receive from the supplier or insurers. So anyone reading 2025 only through the $40 million insurance line misses the fact that the event was not yet fully closed at the collection and settlement level.
The same logic applies to the supplier indemnity. A $47 million asset was already recognized through cost of sales, but the company gives no estimate today for what additional supplier recovery might still arrive. That makes the 2025 number an interim point, not an endpoint.
Why Auditors Focused On Inventory
The real center of this continuation is not the supplier or the insurers. It is inventory. At year-end, inventory stood at $230 million after a total write-down of about $99 million. Of that, $85 million was explicitly booked against defective inventory based on an indication of realizable value, without the effect of changes in oil price between the purchase date and year-end.
The point is not only that inventory took a large hit. The point is that the year-end inventory number rests on judgment. The auditors said inventory valuation was a key audit matter because the work required judgment over management's estimates of net realizable value. They also noted that they compared actual selling prices, including those of damaged inventory, against the carrying value at the balance-sheet date. In other words, the $230 million inventory figure is not a mechanical number. It is a number built on assumptions about selling prices, completion costs, and selling costs.
That is the difference between reading the headline and reading earnings quality. If the event had fully closed inside 2025, the $85 million charge could be treated as the final economic hit. But the company itself says that the sale of defective inventory will affect both reported and adjusted EBITDA when those sales occur, based on actual realized prices, and that the effect may differ from the current provision. That is exactly why the auditors stopped here: year-end does not provide a final price, only an estimate.
What Rolls Into 2026
The part of the event that spills into 2026 is not marginal. It includes four checkpoints that will determine whether 2025 was mainly a clean-up year or only the start of the full settlement process:
| Checkpoint | Why it matters |
|---|---|
| Actual sale prices on the remaining defective feedstock | They will show whether the 2025 provision was conservative, adequate, or light |
| Final supplier recovery | The company still cannot estimate it, so part of the possible offset is still outside the 2025 picture |
| Collection of insurance proceeds | Recognition has already happened, but cash receipt determines when the relief truly moves from accounting to liquidity |
| Any inventory remeasurement | If realizable-value assumptions move, the earnings reading of the event moves with them |
That is why the near-full return to activity in the fourth quarter, important as it is, does not settle the quality-of-earnings question. Operationally, the refinery came back. Accounting-wise and economically, the event is still running through inventory, realized sales, and recoveries from the supplier and insurers.
Conclusion
The right reading of 2025 is not "the company was hit and then got compensated," and it is not "everything was one-off so it can be ignored." The right reading is that the company ended the year with a real operating recovery, but with an earnings picture that still contains an open incident layer.
Reported EBITDA of $142 million already includes both the damage and part of the compensation. Adjusted EBITDA of $166 million gives a better analytical read on refining operations, but it is still not a number that cleanly strips the event away. And inventory, at $230 million after a $99 million write-down, is the reminder that the bottom line still rests partly on realizable-value estimates rather than only on fully settled transactions.
So the key question for the first 2026 reports is not whether the plant came back. That part is already visible. The real question is whether realized sale prices on the remaining defective inventory, cash collections from the supplier and insurers, and any remeasurement of inventory will leave 2025 looking like a contained one-off event, or reveal after the fact that the year's earnings were less closed than the headline suggested.
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