TRIS Rating Co., Ltd. has affirmed the company rating of Esso (Thailand) PLC (ESSO) at “A+” with “stable” outlook. The rating reflects ESSO’s long track record in the petroleum business in Thailand, its efficient refinery and aromatics plant, a well-established retail oil marketing and distribution network, and strong support from Exxon Mobil Corporation and/or its affiliates (ExxonMobil). The rating also takes into consideration the volatility inherent in the petroleum and petrochemical industries, highly fluctuating oil prices and gross refining margins, and additional new capacity at oil refineries in the Asian region.
The “stable” outlook reflects the expectation that ESSO will be able to maintain its strong operational and market positions in the petroleum business in Thailand. The company is expected to maintain adequate liquidity and a healthy balance sheet to accommodate the fluctuating nature of the petroleum and petrochemical businesses.
TRIS Rating reported that ESSO is the Thai affiliate of ExxonMobil and operates one of the 38 refineries run by ExxonMobil affiliates around the world. Currently, ESSO’s shareholders comprise ExxonMobil (66%), Vayupak Fund 1 (7.3%) and others (26.7%). ESSO operates a complex refinery with a maximum rated capacity of 177,000 barrels per day (BPD), supplying about 16% of the total amount of refined petroleum products in Thailand. The company’s throughput of 2,500-3,000 million liters per year via ESSO’s branded network of service stations constituted 15%-18% of annual domestic retail oil sales during the past five years.
TRIS Rating said, the integrated refinery and aromatics plant gives the company the flexibility to adjust its product mix between various petroleum and petrochemical products. With ExxonMobil’s technology and philosophy, the refinery is regarded as one of the most energy efficient, with high operational reliability, in the Asia-Pacific region. ESSO also utilizes the global capabilities of ExxonMobil in purchasing crude and selling finished products. The production volume of refined petroleum product in 2009 comprised diesel (33.8%), gasoline (19.3%), reformate (13.5%), fuel oil (11.1%), jet fuel (7.7%), and others (14.6%). For the first half of 2010, ESSO’s refinery was run at a utilization rate of 68.3%, down from 79.4% for the same period in 2009, mainly due to planned maintenance in March. The utilization rate was also pushed lower because global operators added new refining capacity in 2009-2010 which pressured refining margins across the industry. However, the rate should improve for the full year, as there will be no planned maintenance in the second half of 2010 and oil demand should be stronger following the global economic recovery. Paraxylene production decreased to 154,000 tonnes, down by 22.6% from the same period in 2009, due to oversupply and lower margins in the industry. For the oil marketing business, however, ESSO’s market share for petroleum products distributed through service stations improved from 16.64% in 2009 to 17.42% for the first six months of 2010, despite keeping the number of service stations at 537.
During the first half of 2010, ESSO’s sales improved to Bt89,378 million, an increase of 17.9% from the same period in 2009, due to higher oil prices despite lower volume. Ninety-one percent of total sales came from the oil business and 9% from the petrochemical business. The spread between refined products and crude oil prices for the first half of 2010 was higher than in 2009, hence the industry gross refining margin (GRM) for the first half of 2010 was better than in 2009. However, ESSO’s GRM for the first half of 2010 was US$2 per barrel, compared with US$5.60 per barrel for 2009. The decrease derived from an inventory loss recorded in the first half of 2010, compared with an inventory gain in 2009.
ESSO’s financial position remains satisfactory. The company recorded a net loss of Bt55 million for the first half of 2010, compared with net profit of Bt4,450 million for 2009. However, operating cash flow remained satisfactory at Bt2,389 million for the first half of 2010, compared with Bt3,939 million for 2009. As of June 2010, total debt was Bt27,471 million and the debt to capitalization ratio was 54.26%.
The ratio is expected to increase slightly during the development of the Euro IV compliance project during 2010-2011. The investment for the project is estimated at approximately Bt13,000 million. ESSO plans to fund this project through both operating cash flow and additional loans. An additional credit facility of Bt54,000 million from ExxonMobil provides ESSO with a strong cushion against the cyclicality of prices for petroleum and petrochemical products, said TRIS Rating. -- End
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