TRIS Rating Co., Ltd. has affirmed the company rating of Esso (Thailand) PLC (ESSO) at “A+” with “stable” outlook. The rating reflects the company’s long track record in the petroleum business in Thailand, its efficient and integrated refinery and aromatics plant, a well-established retail oil marketing and distribution network, and strong support from Exxon Mobil Corporation (ExxonMobil) and/or its affiliates. The rating also takes into consideration the volatility inherent in the petroleum and petrochemical industries, highly fluctuating oil prices and gross refining margins (GRM), and the weakening global economy. 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 34 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 operating philosophy, the refinery is regarded as one of the most energy efficient in the Asia-Pacific region, with high operational reliability. ESSO also utilizes the global capabilities of ExxonMobil when purchasing crude and selling finished products. The production volumes of refined petroleum product in 2010 comprised diesel (35.3%), gasoline (19.4%), reformate (13.0%), fuel oil (10.5%), jet fuel (7.8%), and others (14.0%). For the oil marketing business, ESSO is the second-largest oil retailer of fuel sold through service stations. Its market share through service stations accounted for approximately 15%-18% for the last five years, behind PTT.
ESSO’s refinery was run at a utilization rate of 69.8% during the first nine months of 2011, up slightly from 68.0% for the same period in 2010. The utilization rate is expected to decrease for the rest of 2011, due to a plant shutdown. ESSO has scheduled a two-month plant shutdown beginning 16 September 2011, for regular scheduled maintenance and for commissioning the Sriracha Clean Fuels project (EURO IV) to comply with new regulations which will be imposed on 1 January 2012. In the first nine months of 2011, paraxylene production increased to 284,000 tonnes, up by 27.4% from the same period in 2010, as paraxylene margins widened across the industry.
During the first nine months of 2011, ESSO’s sales improved to Bt163,520 million mainly due to higher oil prices, this represents an increase of 24.1% from the same period in 2010. The majority of sales (88%) came from the oil business and 12% from the petrochemical business. GRM rose across the industry because of strong demand in the first half of 2011 plus tighter crude supply due to the unrest in the Middle East and North Africa (MENA) region. ESSO’s GRM for the first nine months was US$5.3 per barrel, compared with US$2.0 per barrel for the same period in 2010. The GRM has increased in tandem with the industry. Looking forward, the weakening global economy has pressured oil demand since the third quarter of 2011, resulting in declines in oil prices. The pressure on refinery margins may be partly alleviated by the unplanned shutdown of refineries in the region and the rising demand for heating oil for the winter season.
ESSO’s financial position remains satisfactory. The company recorded a net profit of Bt3,098 million for the first nine months of 2011, compared with a net loss of Bt195 million for 2010. As of September 2011, total debt was Bt31,739 million and the debt to capitalization ratio was 54.4%. The ratio is expected to improve after the completion of the Euro IV compliance project by the end of this year and no huge investment is currently planned for the next two to three years. ESSO’s liquidity is ample. The company has a credit facility of Bt54,000 million from ExxonMobil Group, which provides ESSO a strong cushion against the cyclicality of petroleum and petrochemical product prices.
The recent heavy flood in the central region of Thailand has impacted ESSO’s operation since October 2011. Approximately 20% of its service stations and 12% of its distribution terminal have had to temporarily suspend operations as they are located in flooded areas. The impact of the floods on ESSO’s performance is expected to be minimal because the floods situation has been easing, and most of ESSO’s service stations and distribution terminal have currently resumed operation. Demand for oil in Thailand is expected to be weaker in the fourth quarter of 2011, due to the flood-related drop in industrial activities and transportation. However, economic activities and demand for oil are expected to recover in the coming quarters, said TRIS Rating. -- End
Company Rating: Affirmed at A+ Rating Outlook: Stable
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