TRIS rating has affirmed the company rating of ESSO (Thailand) PLC (ESSO) at “A+” with “stable” outlook. The rating reflects the strong financial support from ExxonMobil group, its long track record in the petroleum business in Thailand, efficient and integrated refinery and aromatics plant, and well-established retail marketing and distribution network. The rating is constrained by the volatility inherent in the petroleum and petrochemical industries. The “stable” outlook reflects an expected continuation of strong financial support from the ExxonMobil group, which should help ESSO weather the fluctuating nature of the petroleum and petrochemical industries. The company is also expected to maintain its market positions in the petroleum business in Thailand. For the next 1-2 years, the chance of rating upgrade is limited due to the volatilities and downward pressure on oil prices. However, ESSO’s rating could be downgraded if the company lacks the financial support from the ExxonMobil group, or the ExxonMobil group dilutes its stake in ESSO.
ESSO is the Thai affiliate of ExxonMobil. The company operates one of the 24 refineries run by ExxonMobil affiliates around the world. ESSO and its affiliates began the oil business in Thailand in 1894 and started refinery operation in 1971. As of March 2014, ESSO’s major shareholders comprised ExxonMobil group (66%) and Vayupak Fund 1 (7%). ESSO’s business profile is very strong. The company operates a complex refinery with a maximum rated capacity of 174 thousand barrels per day (KBD), accounting for approximately 16% of the total refinery capacity in Thailand. The refined products are sold through ESSO’s network to commercial and retail customers. As of September 2014, there were 519 service stations operated under the “Esso” brand name. The company also operates an aromatics plant, which is integrated with its refinery. The aromatics plant has a production capacity of 500 thousand tonnes per annum (KTA) of paraxylene (PX).
ESSO’s business profile reflects the integration of the refinery and the aromatics plant, which gives the company the flexibility to adjust product mix between various petroleum and petrochemical products. With ExxonMobil’s technology and operating philosophy, ESSO’s refinery is among one of the top tier energy efficient plants in the Asia-Pacific region, with high operational reliability. ESSO is also able to leverage ExxonMobil’s global network in crude oil procurement and finished products distribution. In 2013, ESSO’s refinery product mix was diesel (36.7%), gasoline (16.8%), reformate (13.0%), fuel oil (9.7%), jet fuel (9.0%), and others (14.8%). For the first nine months of 2014, ESSO’s network of service stations was the third-largest retailer in terms of fuel sold through service stations.
ESSO’s financial profile is weaker than expected due to the volatility in oil prices and the oversupply of PX, which pressured on the company’s profitability. For the first nine months of 2014, the company’s total revenue decreased by 3.2% year-on-year (y-o-y) to Bt175,446 million from Bt181,293 million for the first nine months of 2013. The drop was due to a decrease in oil prices and PX prices as well as lower sales volume due to the scheduled maintenance for refinery and aromatic plants in June and mid September. The majority of sales (90%) came from the oil segment and the rest (10%) was from the petrochemical segment. ESSO recorded an operating loss of Bt4,536 million for the first nine months of 2014. ESSO’s gross refining margin (GRM) dropped from US$4.2 per barrel for the first nine months of 2013 to a negative of US$0.4 per barrel for the first nine months of 2014. The oil refining and marketing segments recorded a combined operating loss of Bt2,917 million for the first nine months of 2014. The profitability of the petrochemical segment was still under pressure by an oversupply of PX, resulting in a thin spread between PX prices and its feedstock price. The petrochemical segment recorded an operating loss of Bt1,619 million for the first nine months of 2014. A sharp drop in oil price in the fourth quarter of 2014 is expected to cause further inventory losses for ESSO. In the fourth quarter of 2014, the average price of Dubai crude is expected to drop by US$35 per barrel, falling from an average of US$96 per barrel in September 2014 to approximately US$61 per barrel in December 2014. However, TRIS Rating expects that the losses will not materially impact ESSO’s operating cash flow, as the company requires less working capital owing to cheaper crude oil prices.
As of September 2014, the company’s total debt stood at Bt37,732 million, which was higher than TRIS Rating’s expectation. However, about 48% of the total debt was provided by the ExxonMobil group, up from about 0.5% at the end of 2011. The support helped enhance ESSO’s liquidity to meet its obligations to other lenders. In addition, the ExxonMobil group also provides credit facility of Bt54,000 million, which currently is not utilized. This facility will be expired in 2016 and will then be renewable for another three years. As of September 2014, the debt to capitalization ratio was 66.9% and expected to increase at the end of 2014 due to lower equity mainly from inventory valuation losses in the fourth quarter of 2014. The total debt is not expected to increase from the level at the end of September 2014, as the company is expected to require lower working capital. TRIS Rating views that ESSO’s debt service ability is still consistent with its rating category due to the strong support from the ExxonMobil group. As the company does not have sizable investment projects during 2015-2017, the debt to capitalization ratio is expected to improve gradually, assuming no further significant crude prices drop. The company’s EBITDA (earnings before interest, tax, depreciation and amortization) is expected to stay above Bt4,000 million per annum on average during 2015-2017, while the capital expenditures (CAPEX) are expected at about Bt1,000 million per annum.
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