TRIS Rating Co., Ltd. has assigned the company rating of Esso (Thailand) PLC (ESSO) at “A+” with “stable” outlook. The rating reflects ESSO’s proven record in the petroleum business in Thailand, its efficient refinery and aromatic integration, strong retail brand name, healthy balance sheet 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, and the highly fluctuated oil price and gross refining margins. Upcoming refining and paraxylene capacity as well as declining demand for petroleum and petrochemical products are rating concerns.
The “stable” outlook reflects an expectation that ESSO will be able to maintain its strong operational and market position. With its strengthened balance sheet, its low committed capital expenditure and laddered repayment schedule, ESSO will be able to weather downward cycles in the oil and aromatic businesses.
TRIS Rating reported that ESSO is one of ExxonMobil’s affiliates in Thailand and one of the 38 refiners operated by ExxonMobil affiliates around the world. ESSO’s predecessor began the oil business in Thailand in 1894 and started its refinery operations in 1971 with an initial refining capacity of 35,000 barrels per day (BPD). Currently, ESSO operates a complex refinery with a maximum rated refining capacity of 177,000 BPD, supplying about 16% of total 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 total domestic retail oil sales during the past five years.
As an ExxonMobil affiliate, ESSO employs ExxonMobil best practices in running its refinery and utilizes most operational programs and management systems utilized by the group. 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 crude purchasing and product selling. After its restructuring and recapitalization in 2007-2008, ExxonMobil International Holdings Inc. and affiliates (ExxonMobil) continue to be ESSO’s major shareholders. Currently, ESSO’s shareholders comprise ExxonMobil (66%), the Ministry of Finance (7.3%) and others (26.7%).
The integrated refinery and aromatic plant gives ESSO flexibility to adjust its product mix between various petroleum and petrochemical products. The production volume of refined petroleum product during 2005-2007 comprised diesel (34.5%), gasoline (22%), reformate (12%), fuel oil (11.7%), jet fuel (7.5%), and others (12.3%), while its paraxylene production averaged 400,000 tonnes per year. Its refined products are 32% distributed through ESSO’s branded network of service stations, and the balance is distributed through other local channels and overseas exports. As of June 2008, there were 555 service stations operated under the ESSO brand name, providing flexibility and diversity in its distributional channel.
TRIS Rating said, during 2005-2007, approximately 91% of ESSO’s revenue came from refinery and marketing businesses, and 9% from petrochemical business. ESSO’s refinery plant was run at an average utilization rate of 83.7%. During the first half of 2008, due to a sharp rise in oil price, ESSO reported high gross refining margin (GRM) of US$15.3 per barrel; however, as Dubai Crude sharply dropped from a peak price of US$140 to US$60-70 during the second half of 2008, the company’s refining margins for the second half is expected to be lower than the first half of 2008. The average GRM for nine months of 2008 declined to US$6.7 per barrel.
ESSO’s financial structure improved significantly after capital injection in 2007 and the initial public offering (IPO) in the first half of 2008. Total debt decreased from Bt62,316 million in 2006 to Bt30,577 million as of September 2008. Its debt to capitalization ratio improved from 106% in 2006 to 58.73% in 2007 and to 49.87% as of September 2008. With an average earnings before interest, tax, depreciation, and amortization (EBITDA) of Bt10,000 million a year, its capital expenditure for the Euro IV compliance project and annual debt repayment of approximately Bt3,000 million, the company’s need for external financing is moderate. Its unused bank facilities of approximately Bt6,000 million as of September 2008 and additional credit facilities of Bt54,000 million from ExxonMobil provide a strong cushion during downward cycles in commodity prices of both petroleum and petrochemical products, said TRIS Rating. — End
Company Rating: A+ Rating Outlook: Stable
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