Petron, Shell line up big investments

MANILA, Philippines - Oil industry giants Petron Corp. and Pilipinas Shell Petroleum Corp. will continue to invest heavily to expand local operations on the back of improving economic prospects in the country.

Top officials said Petron will spend P8 billion for a 70-megawatt (MW) power plant while still remaining interested in overseas acquisitions, particularly Esso Thailand. Pilipinas Shell, for its part, has allotted P2-3 billion for marketing and retail expansion.

Petron president Eric O. Recto said the oil giant will build a new 70-MW petroleum coke-fueled power plant that will supply the needs of its refinery.

“The additional investments is going to be about P8 billion,” he said.

Petron’s refinery in Limay, Bataan is undergoing a $1.8-billion expansion that will be completed in 2015. It will increase the output of petroleum fuel and petrochemicals used to make plastic.

Recto said the first 70-MW power plant worth P11 billion will be commissioned this year.

“We will not deviate from our typical 70-30 debt to equity funding structure,” he said.

Meanwhile, he said Petron is still on the lookout for new acquisitions. It has for instance, expressed interest in Esso (Thailand) Public Co., Ltd., which is a unit of American oil and gas giant ExxonMobil Corp.

“If it does become available, we will look at it,” he added.

“Right now we are not actively pursuing acquisitions but if something worthwhile comes up, we will take a look at it,” Recto said.

In August, Petron acquired a 65 percent stake in Esso Malaysia from ExxonMobil for $206 million, as well as two unlisted subsidiaries – ExxonMobil Borneo Sdn Bhd and ExxonMobil Malaysia - for $404 million, bringing the total transaction to $610 million.

Part of the deal includes Petron’s acquisition of 35.539 million shares of ExxonMobil Malaysia and 15.45 million shares of ExxonMobil Borneo, giving Philippine conglomerate and Petron parent firm San Miguel Corp. (SMC) full ownership of the two companies.

The deal resulted in a voluntary tender offer for the remaining 94.5 million shares held by the public at an offer price of 3.59 Malaysian ringgit or P50.52 per share or a total of 339.26 million Malaysian ringgit (around P4.77 billion). The purchase will be completed on March 30.

Recto said Esso Malaysia’s refinery needs additional investments while its network has room for growth.

Esso Malaysia’s operations in that country include a refinery located in Port Dickson on the west coast with a capacity of 88,000 barrels per day, seven fuel distribution terminals and a network of about 560 retail stations, of which 420 are company-owned.

The Port Dickson refinery currently produces a range of products including gasoline, diesel, liquefied petroleum gas, jet fuel, kerosene and low-sulfur waxy residue. SMC plans to invest up to $1.2 billion to upgrade the refinery.

SMC owns 68 percent of Petron, the Philippines’ largest oil refining and marketing company with crude distillation capacity of 180,000 barrels per day and over 1,700 service stations.

SMC, in the last few years, has diversified its core portfolio of food, beverage and packing by expanding its participation in industries such as petroleum, power generation and distribution, mining and infrastructure.

Meanwhile, Pilipinas Shell will spend at least P2-3 billion this year.

“We are looking at many expansion areas. We are looking at facilities, we are looking at expanding our retail network,” said Pilipinas Shell country chairman Edgar O. Chua.

“We are very bullish on the situation, on the market. We have a very good government in terms of the leaders sending the right tone,” he said.

Pilipinas Shell operates a refinery in Tabangao, Batangas with a capacity of 110,000 barrels per day.

Chua said the company will announce its investment decision for its refinery within this year.

“It is not easy as you are aware. There are tax issues, Pandacan issues, pipeline issues,” he said.

This year, Pilipinas Shell expects profits to rebound after falling last year compared with 2010 levels given higher costs and lower revenues.