INSIGHT: Thai Oil may partner IRPC for merger

16 December 2007 04:00  [Source: ICIS news]

By Abdul Hadhi

SINGAPORE (ICIS news)--Thai Oil reported weaker-than-expected third-quarter earnings last month but buoyant oil values suggest it is still in a sweet spot.

The company, nearly half owned by Thailand energy giant PTT, reported a 29% fall in third-quarter net profit to baht (Bt) 2.5bn ($82m/€56m) as a weak paraxylene performance amid higher costs and lower prices more than offset strong refining margins.

The company targets a net profit of Bt13bn in 2007 due to a maintenance shutdown in the fourth quarter, which will limit output.

Third-quarter gross refining margins were $6/bbl, somewhat below analysts’ expectations. But even at those levels, it is projected to show record profits in 2008 on double-digit sales growth as it squeezes additional capacity from existing facilities.

“We recorded the highest net profit of Bt16bn in 2006, and now we look forward to seeing a better figure next year,” Thai Oil Managing Director Viroj Mavichak said.

Driving the growth will be a rise in capacity by 50,000 bbl/day to 275,000 bbl/day amid consistently high oil prices.

But management has to look beyond this as oil prices are volatile and just as they came close to $100/bbl last month, they had been below $40/bbl less than five years back and may get there again.

Except for building a power plant, Thai Oil isn’t expected to indulge in any major capital expenditure that may drive earnings significantly beyond 2008.

But a merger may be the way forward into the next decade. Such a move would also benefit PTT.

PTT has a number of units operating in the same businesses and it has already moved to merge some which will reduce costs by eliminating duplication and making operations more streamlined.

It merged National Petrochemical Co and Thai Olefins Co in 2005 to create PTT Chemical, and has followed up with plans this year to merge Aromatics (Thailand) with Rayong Refinery into a new company likely to be named PTT Aromatics and Refinery.

For Thai Oil, Bangchak Petroleum or even the merged ATC-RRC are possible merger candidates and PTT is studying the matter.

IRPC, however, may be the best bet. The two are jointly working on how to better synergise their assets to drive earnings and have a co-cracking programme - IRPC sends lower value product, long residue, to upgrade to higher value products by Thai Oil.

“By doing this, IRPC could not only achieve a high utilisation rate but also prolong its petroleum improvement plan that requires a huge investment budget and creates additional capacity,” KGI analyst Sutthichai Kumworachai said.

IRPC’s refinery will be enlarged by 21% to produce 260,000 bbl/day next year and profit from processing each barrel may even double from around $5/bbl currently.

The other two suitors may have less to gain from the merger.

Bangchak Petroleum plans to change its configuration from a simple refinery to a complex refinery after starting a product quality improvement project in the third quarter of next year, and that should drive forward earnings.

As for the merged ATC/RRC, it is unlikely to be in the best of positions to handle another big merger while being in the midst of one.

($1.00 = Bt30.34) ($1.00 = €0.68)

By: Abdul Hadhi
+65 6780 4359

< previous article(VIDEO - ICIS news Asia Lunchtime Bulletin 30 October 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly