Petron hopes to save P1 billion with own power plant

MANILA, Philippines - Oil refining and retailing giant Petron Corp. expects to realize P1 billion in cost savings with its planned power generation plant, according to a top company official. Emmanuel E.Eraña, Petron’s chief finance officer, said the firm is putting up a greenfield coal-fired power plant to service its own electricity requirements and manage its operating costs.

The project, to be constructed within the company’s refinery compound in Limay, Bataan, is estimated to cost $200 million or about P10 billion over a three year period beginning this year.

Petron has amended its articles of incorporation to include electric power generation and sale in the company’s primary purpose.The move is in line with plans to be a self-generating firm and to produce the power needed for its operations.

To further cement its dominant position in the industry, Petron has earmarked P1 billion a year to further expand its domestic service station network, which currently stands at 1,400. This expansion is expected to boost the oil firm’s network by more than 1,000 stations in the next five years.

The company is also looking to upgrade its refinery to higher conversion capability that will complete eliminate production of the low value fuel oil and increase production of higher margin products. The project is estimated to cost around $1 billion over a five-year period.

Petron has also earmarked P400 million for the construction of 153 new convenience stores to add to its existing network of 51. Funding for its expansion will come from a planned preferred share offering, estimated to raise as much as P10 billion, as well as internally-generated funds and borrowings from the local and international debt markets.

The offering involves 50 million perpetual preferred shares, with an option to increase it by an additional 50 million shares to be sold at an indicative price of P100 each. Petron’s plan to repay its short-term debts is expected “free up the short-term credit lines available to the company for its working capital requirements, particularly for the importation of crude oil supply and petroleum products.”

Other proceeds from the offering will be used to prepay short-term debt to free up the short-term credit available to the company for its working capital requirements, particularly for the importation of crude oil supply and petroleum products. As of end-September 2009, the company had consolidated short-term debt of P45.6 billion.

The offer price will be set on Feb. 9. The offering will run from February 15 to 26 while the listing has been scheduled on March 5. BDO Capital & Investment Corp., BPI Capital Corp. and ING Bank N.V. (Manila branch) were tapped as joint lead managers and bookrunners for the issue.

Petron is the market leader in the domestic oil industry with an overall market share of 36.4 percent as July 2009. It has the biggest refining capacity, most extensive distribution network and most number of service stations.

Petron has a capacity of 180,000 barrels per day and supplies nearly 40 percent of the Southeast Asian country’s fuel requirements. Petron is eyeing a net income of P4.2 billion in 2009, a reversal of the P3.98-billion loss a year earlier on improving sales.