TRIS Rating has affirmed the company and senior unsecured debentures ratings of The Bangchak Petroleum PLC (BCP) at “A-” with “stable” outlook. The ratings reflect the proven operating record of BCP’s refinery, the integration of BCP’s refining and marketing segments, its leading position in renewable energy, and its diversification into solar power. The ratings are partially weighed by the recent expansion to the petroleum’s exploration and production (E&P) segment and the typical fluctuations in oil prices and the gross refining margin (GRM). The “stable” outlook reflects the expectation that BCP will sustain its strong market position in the oil retailing segment. The investments in solar power projects are expected to generate reliable streams of income and partially offset the fluctuations in the oil refining and marketing segments.
BCP was established in 1985 and listed on the Stock Exchange of Thailand (SET) in 1993. The company owns and operates a complex oil refinery, located in Bangkok. The refinery has a capacity of 120 thousand barrels per day (KBD), accounting for approximately 11% of the total refinery capacity in Thailand. The company operated 1,062 service stations nationwide as of June 2014 under the “Bangchak” brand. Currently, BCP also operates 118 megawatts (MW) of solar power. For the first six months of 2014, the refinery segment generated 52% of BCP’s EBITDA (earnings before interest, tax, depreciation, and amortization). The marketing segment comprised 26% of total EBITDA, while the solar power segment accounted for the remaining 22%. As of September 2014, PTT PLC (PTT) held 27.22% interest in BCP, the Ministry of Finance (MOF) held 9.98%, and the remaining 62.80% was held by the public.
BCP’s strong business profile reflects the integration of its complex refinery with its marketing network. As a complex refinery, BCP is able to process a variety of crude oils, yielding high proportions of high GRM products such as diesel fuel and jet fuel. During the first six months of 2014, BCP’s refinery was shut down for 46 days for a major turnaround and to replace new crude distillation unit (CDU). The shutdown decreased BCP’s crude intake to 73.0 thousand barrels per day (KBD) from 97.8 KBD in the first six months of 2013. The crude intake is expected to increase to approximately 100 KBD in the second half of 2014. The company’s mix of refined products was diesel (49%), gasoline (20%), fuel oil (18%), and jet fuel (9%). The base GRM was US$5.9 per barrel for the first six months of 2014.
For the first six months of 2014, despite the refinery shutdown, the volume of refined products sold through BCP’s service stations increased by 2.5% from 243 million liters per month (ML/MO) for the first six months of 2013 to 248 ML/MO for the first six months of 2014. Refined products sold through BCP’s service stations accounted for 64% of the total sales volume in BCP’s marketing segment. The remainder (36% of the sales volume) was sold directly to industrial customers. The company focuses on offering gasohol and bio-diesel to help increase its market share of products sold through service stations. For the first six months of 2014, BCP was the second- largest oil retailer in Thailand, with a market share of 15%, up from 14.6% for the first six months of 2013.
For the solar power segment, BCP has power purchase agreements (PPA) totaling 118 MW with the Provincial Electricity Authority (PEA) and the Electricity Generating Authority of Thailand (EGAT). Each contract includes a tariff adder of Bt8 per kilowatt-hour (kWh). As of June 2014, all 118 MW were in operation. BCP expects the solar power segment to generate about Bt2,700-Bt2,800 million of EBITDA per year, or about 20%-25% of the company’s EBITDA. For the first six months of 2014, solar power generated an EBITDA of Bt1,123 million to BCP.
BCP’s financial profile during 2013 through the first six months of 2014 was in line with TRIS Rating’s expectation. For the first six months of 2014, BCP’s total revenue decreased by 2% year-on-year (y-o-y) to Bt90,433 million, as lower sales volume largely offset an increase in oil prices. The operating margin (operating income before depreciation and amortization as a percentage of sales) was 4.4% for the first six months of 2014. At the end of June 2014, BCP’s total debts increased to Bt31,283 million, from Bt21,914 million at the end of December 2013. The capital structure remained satisfactory, with total debt to capitalization ratio at 46% as of June 2014.
In October 2014, BCP completed the acquisition of 81.41% interest in Nido Petroleum Ltd. (Nido). The transaction was worth approximately US$90 million (or approximately Bt3,000 million). This acquisition is BCP’s first effort at backward integration into the E&P business. Nido is an independent oil and gas exploration and production company. The company is listed on the Australian Securities Exchange (ASX). It has investment interests in the Philippines and Indonesia. During the first six months of 2014, Nido had a production rate of 2,111 barrels of oil per day. It had proved petroleum reserves of 4.14 million barrels at the end of 2013. Although this investment brings BCP a new business opportunity, it also exposes the company to some operational and regulatory risks.
During 2014-2017, TRIS Rating’s base case expects the company’s EBITDA will exceed Bt9,000 million per year, based on a crude intake of 100-110 KBD and a base GRM at about US$6 per barrel on average. BCP’s total capital expenditures and investment budget during 2014 to 2017 are expected to total approximately Bt30,000 million. Approximately Bt26,000 are earmarked for refinery improvements and debottlenecking, plus expansions of BCP’s marketing network, solar power projects, and bio-diesel plant. The rest of Bt4,000 million is budgeted for investment in Nido and an ethanol plant. Given the expected levels of EBITDA and capital expenditures, BCP’s total debt to capitalization ratio may increase slightly during the investment period. However, TRIS Rating expects that the ratio will not exceed 50% over the next three years.
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