Ashdod Refinery in the First Quarter: Strong Margins Meet Higher Exports and Negative Cash Flow

Ashdod Refinery opened 2026 with two conflicting readings in the same quarter. The positive reading is a much stronger refining backdrop: the company's adjusted refining margin rose to $14.3 per barrel, diesel and jet fuel margins jumped, and adjusted EBITDA reached $38 million versus $26 million in the comparable quarter. The less comfortable reading is that these numbers did not reach cash: the company reported a $45 million loss, negative operating cash flow of $62 million, and an $81 million decline in cash. The quarter also gives the first answer to the question that opened after the reset of the anchor-customer agreement: export revenue rose to $203 million and reached about 29% of revenue, while domestic-market revenue fell to $468 million. That is not a commercial collapse, but it is a mix shift toward a channel with less visibility and more exposure to regulation, logistics, and margins. At the same time, the chlorides incident is not fully closed: part of the non-standard raw-material inventory was sold, the impairment was reversed because oil prices rose, and some repair work is being pushed into the 2027 turnaround at an estimated cost of $115 million to $130 million. The current read is mixed: the operating core is alive, the balance sheet is not under covenant pressure, but 2026 still needs to prove that strong margins can become cleaner earnings, higher-quality sales, and cash flow that is not absorbed by inventory, suppliers, and derivatives.

Strong margins, but not a clean quarter

Ashdod Refinery imports crude oil and intermediate feedstock, refines them into petroleum products, sells into the domestic market and export markets, and also operates a power activity that serves the refinery and sells to third parties. This is not a classic growth story. The economics depend on product margins, utilization, sales mix, commodity and currency risk management, and especially the ability to finance a large working-capital base without letting accounting profit detach from cash.

Revenue fell to $691 million, down 6.4% year over year, mainly because product prices declined by about 8%. Yet the margin environment itself was far stronger: the company's adjusted refining margin rose from $9.1 per barrel to $14.3 per barrel, the gasoline crack rose 35%, the diesel crack doubled to $40.5 per barrel, and the jet fuel crack rose 181% to $52.2 per barrel. That is a real tailwind, not only an accounting adjustment.

The issue is that the quarter was not operationally or accounting clean. Production volume fell to 948 thousand tons from 1,017 thousand tons, and refinery-unit utilization fell to 74% from 83%, partly because of January regeneration after the incident. At the same time, the company recorded a $54 million loss on future transactions on product margins through the end of 2026. Reported operating profit was therefore a $41 million loss, while adjusted operating profit was $24 million and adjusted net profit was $30 million. The quarter proves the ability to benefit from a strong margin environment. It does not yet prove a clean full run-rate.

Exports gained more weight

The prior Deep TASE analysis on the anchor-customer reset and exports framed the 2026 commercial question: can the company fill the gap in the domestic market, or will exports become the main absorption channel? The first quarter gives only a partial answer, but it is meaningful. The company does not disclose volumes and profitability by customer, so the data cannot prove the margin quality of each channel. Still, the revenue mix has already moved.

Domestic-market revenue fell by $113 million, or 19.4%, while export revenue rose by $63 million, or 45%. Exports increased from about 19% of revenue to about 29%. This is a revenue comparison rather than a tonnage comparison, but it is enough to say that the quarter did not resolve the mix question. The company is able to sell, but a larger share of the sale is moving into a channel where logistics costs, market conditions, and regulatory limits can change the economics more quickly.

Customer concentration tells the same story without naming the customers. Revenue from Customer A fell from $356 million to $219 million, down 38.5%, while Customer B was almost unchanged. Combined with the rise in exports, the picture is that the company is reducing part of the dependence, but still needs to prove that this diversification is not coming at the cost of weaker sales quality. When diesel and jet fuel cracks are strong, a partial shift to exports is not necessarily an immediate hit. When margins normalize or export limits appear, the quality of that channel will matter much more.

Adjusted EBITDA did not reach cash

The sharpest gap in the quarter is not between the reported loss and adjusted profit. It is between adjusted profit and cash flow. Adjusted EBITDA rose to $38 million, but operating cash flow was negative $62 million. For a refinery, working capital is part of the business itself: inventory, suppliers, customers, factoring, derivatives, and oil prices can turn a profitable adjusted quarter into one that consumes cash.

Inventory doubled from $230 million at the end of 2025 to $460 million at the end of March, and the cash flow statement shows a $230 million use of cash in inventory. Suppliers increased and supported cash flow by $178 million, while derivatives added $69 million. In other words, part of the burden was financed through supplier credit and hedges, but it did not disappear. It moved into liabilities and derivatives.

The right framing here is all-in cash flexibility: cash left after actual cash uses during the period. In the first quarter, operating activity consumed $62 million, capex consumed $13 million, and financing activity consumed $6 million, including $2 million of lease-principal repayment and $4 million of interest paid. Overall, cash declined by $81 million, from $289 million at the start of the year to $208 million at the end of March.

Liquidity does not yet look dangerous. The company had $208 million of cash and cash equivalents, $432 million of equity, and was in compliance with its bond and bank covenants. The debt to adjusted EBITDA ratio was 0.2 under the bond covenants and 0.8 under the bank facilities. But covenant headroom is not a substitute for cash generation. Accounting working capital fell to $63 million from $116 million at the end of 2025, and the current ratio declined to 1.07 from 1.19. That is still a positive operating cushion, but a narrower one at the start of a year in which the company must also manage higher exports, non-standard inventory, hedges, and a volatile security environment.

Conclusions

The chlorides incident no longer looks like a threat to the refinery's ability to operate, but it still affects earnings quality, inventory, and the investment plan. In the first quarter, the company sold part of the non-standard raw-material inventory, and for the remaining inventory no impairment was recorded at the end of March because oil prices had risen. That is an accounting improvement, not full closure. During the reporting period, the company received $11 million from insurers, and after the reporting period it received another $18 million, bringing total insurance advances to $40 million. Supplier indemnification of $47 million was recorded in 2025 and remained unchanged.

The 2027 turnaround pulls that tail into future cash flow. The company estimates the cost, including preparation to handle part of the incident damage, at $115 million to $130 million, and plans to supply domestic customers during the turnaround through imports and inventory accumulation in advance. Therefore, 2026 must not only show good margins. It also has to prepare inventory, funding, and flexibility for a large maintenance event.

The external environment has already tested the thesis. Operation "Roaring Lion" created unusual oil-price volatility, natural gas and condensate supply disruptions, higher feedstock premiums and logistics costs, and even a temporary order prohibiting product exports. Some customers reduced purchases for April and May because of the war. When exports gain weight, every export restriction or decline in domestic demand becomes a more material checkpoint. Extending two crude-purchase agreements through the end of March 2027 helps supply continuity, but it does not solve inventory cost or the need to fund it.

The first quarter strengthens the view that the operating core is back, but weakens the argument that the recovery is already clean. The read will improve if the company shows positive operating cash flow in the coming quarters, exports that do not erode margin quality, sale of non-standard inventory without another material adjustment, and better collection or clarity from the supplier and insurers. It will weaken if exports keep growing mainly as an absorption channel, if inventory and derivatives continue to absorb cash, or if preparation for the 2027 turnaround starts pressuring liquidity before the core business returns to cash generation. In this quarter, the strong number is not enough. What will decide 2026 is sales quality, working-capital control, and an orderly closure of the chlorides incident.