Bazan in the first quarter: refining jumped, but the cash has not fully opened up

Bazan opened 2026 with a quarter that proves refining is again a strong earnings engine, but also shows why EBITDA is not enough. The adjusted refining margin rose to $12.7 per barrel, consolidated adjusted EBITDA increased to $154 million, and Cantium already distributed $31 million to the company. Still, operating cash flow was only $34 million, including $32 million of business-interruption insurance receipts. The early termination of the inventory availability agreement adds a future payment of about $118 million in October 2026 and raises base inventory exposed to price to as much as 730 thousand tons. Hedges protect part of the margin, but also create collateral deposits, derivative liabilities and basis risk that break the link between high market margins and free cash. Polymers have not yet exited weakness, even though spreads improved after the balance-sheet date. The next quarters are therefore not only a margin test, but a cash-conversion test after working capital, insurance, Cantium, inventory and planned turnarounds.

Refining Recovered, But The Comparison Is Too Easy

Bazan is an integrated refining and petrochemical group in Haifa Bay: a refinery that drives most profit, downstream polymers and aromatics, and Cantium, a U.S. oil and gas asset. This is a margin machine with a working-capital test, where quarter quality depends on spreads, plant availability, hedging, inventory, supplier credit and insurance timing.

The convenient headline is the rise in consolidated adjusted EBITDA from $40 million to $154 million. That is a strong jump, but the parallel quarter was weak because of planned turnarounds. The company estimates a $56 million loss of profit from those turnarounds, so a sharper comparison starts from $87 million, not from $40 million alone.

Even after correcting the comparison base, the quarter is strong. Margin and contribution added $66 million, Cantium added $29 million, while sales volume reduced EBITDA by $20 million and operating expenses reduced it by $22 million. The improvement came less from clean expansion across all lines and more from unusually strong refining margins, a new oil asset and insurance.

The adjusted refining margin reached $12.7 per barrel versus $6.8 in the parallel quarter, but the reference margin was $16.3. The gap matters because the company does not receive the full screen margin. Local pricing, pricing days, hedging, crude premiums, DFL and logistics all sit in the middle. In the current quarter, realized refining-margin and DFL hedges produced a net loss of about $14 million, or about $0.9 per barrel.

Local demand does not explain the jump either. Total domestic refined-product consumption fell by about 5%, and transport-fuel consumption fell by about 2%. Refining sales rose mainly because activity volume was higher than in a quarter affected by turnarounds, alongside higher refined-product prices. That is a good result, but it rests more on market conditions and operations than on broad local demand.

Inventory And Hedging Keep The Cash Test Open

The less visible event is the early termination of the inventory availability agreement. On April 7, 2026, the company and the counterparty agreed to bring the agreement to an early end, and the counterparty exercised its put option on crude-oil inventory. The inventory moved into company ownership, and the consideration was set at about $118 million, payable on October 1, 2026 plus market interest.

At the reporting date, unhedged inventory under contracts was about 525 thousand tons. After the agreement ends, the base inventory is expected to be as much as 730 thousand tons. This may help operationally, but it also adds working capital, price exposure and a clear future payment during a period of high volatility in oil prices and refining spreads.

Hedging reinforces the same point. The company hedged about 7.3 million barrels of 2026 refining margin at a level reflecting an average hedged margin of about $13.5 per barrel, and also held DFL hedges of about 6.2 million barrels. At quarter-end, collateral deposits for refining-margin futures totaled about $69 million. Near report approval, the remaining 2026 refining-margin derivatives, covering about 4.2 million barrels from May onward, represented a liability of about $47 million, with similar collateral deposits.

Hedging is necessary for a refinery, but it makes the high market-margin story less direct: part of the profit is fixed in advance, part of the market move is reflected in derivative liabilities, and part is absorbed in collateral. The company also estimates basis risk at about $5 to $10 per barrel above normal. High diesel and gasoline margins can support the next quarters, but not every dollar of screen margin will become EBITDA or cash.

The all-in cash picture tests what is left after actual uses: operating cash flow, interest, CAPEX, debt repayment, leases, deposits, investee distributions and financing flows. In that frame, the quarter was much less powerful than EBITDA. Cash declined from $615 million at the end of 2025 to $545 million at the end of March 2026.

Operating cash flow was $34 million, but it included about $32 million of insurance receipts for lost profits. Receivables increased by $357 million, inventory by $222 million, and suppliers by $417 million. Suppliers with extended credit days rose to $585 million from $293 million at the end of 2025, showing that part of the cash support came from credit terms, not only from operating margin.

Debt is comfortable but not risk-free. Net financial debt including Cantium rose to $794 million from $667 million. Leverage fell from 1.5x to 1.4x, and covenants are far from their thresholds, but some covenant EBITDA calculations include about $130 million of business-interruption insurance receipts from Q4 2025 and Q1 2026. This is headroom, not proof that all profitability is already recurring cash.

The $35 million dividend paid after the balance-sheet date adds discipline. It comes before the roughly $118 million inventory payment in October, before planned Q4 turnarounds with an estimated direct cost of $80 million to $100 million, and while hedge collateral can keep moving with the market. The test is whether the company funds it without eating into the cash cushion.

Cantium Advanced, Polymers Still Need To Prove The Turn

Cantium closes part of an open question. In the prior Cantium analysis, the concern was that the asset added EBITDA but it was still unclear how much cash was actually accessible to Bazan. In the current quarter, Cantium distributed profits and the company's share was about $31 million. That is cash that moved up, not only value or EBITDA.

Still, the route is not simple. Bazan's share of Cantium adjusted EBITDA was $29 million, but its share of equity-method losses was $22 million. The gap came mainly from hedge revaluation: Cantium recorded about $73 million of hedge revaluation expenses, of which about $65 million related to later periods and were adjusted out of adjusted EBITDA, with Bazan's share at about $34 million. The asset has started sending cash, but hedging, debt and obligations still decide how much WTI upside reaches shareholders.

Polymers sit on the other side of the map. Segment revenue fell to $162 million from $193 million, and EBITDA was negative $8 million versus positive $1 million. Output fell to 118 thousand tons from 155 thousand tons, partly because of the decision to reduce operating scope at Ducor production lines. The polyethylene spread over naphtha improved to $774 per ton, but polypropylene fell to $512 per ton, and polypropylene is most of Carmel Olefins' normalized output.

After the report date, polypropylene and polyethylene spreads rose to about $1,189 and $1,538 per ton, respectively. That could turn polymers from a drag into a recovery engine. But Q1 itself does not prove it. The test is whether the market-spread improvement appears in segment EBITDA, rather than staying an external datapoint after the reporting period.

Conclusion

The first quarter improves the read on the company, but does not close it. Refining again looks like a meaningful earnings engine, Cantium has already transferred cash, and insurance continues to progress. The main constraint is how much remains after working capital, hedge collateral, the inventory payment, CAPEX, turnarounds and distributions. This is more positive than year-end 2025, but still incomplete.

The next quarters will test four points: high refining margins converting into EBITDA and cash after hedging and DFL, polymers moving into positive EBITDA, Cantium turning the $31 million distribution into recurring capacity, and insurance cash not substituting for normal profitability. The counter-thesis: the market is now on the company's side, with improved refining and polymer spreads, higher WTI, covenant headroom and continued insurance cash. What would weaken that read is failure to convert spreads into cash, continued negative polymer EBITDA, prolonged insurance recovery or another rise in working-capital needs. The market will focus less on whether spreads are high and more on whether Bazan can turn them into cash after this quarter's risk layers.